Bank forecasts show no v-shaped recovery in UK economy

Credit;PA

The UK economy is not looking for a v-shaped recovery following the pandemic after the Bank of England projected it might take longer-than-expected to bounce back, economists have warned.

On Thursday morning, the central bank said the immediate impact of the economy is likely to be shallower than it last projected, however the recovery was now likely to be more slow.

It asserted UK GDP is unlikely to achieve pre-crisis levels until the end of 2021, having previously forecast it would reach that level by the second quarter of this year.

Jeremy Thomson Cook, chief economist at Equals, said: “The recovery is not going to be v-shaped, the Bank of England is not expecting the economy revisit Q4 2021 size before the end of the coming year, and expects inflation will not reach its target over the two-year forecast period.”

Tom Stevenson, investment director for private investing, Fidelity International, said: “The Bank of England seems much less convinced by the prospect of a V-shaped recovery for that UK economy than even just a few weeks ago.

Uncertain

“The decision to leave interest rates unchanged at 0.1% surprised no-one however the tone from the accompanying commentary was uncertain.

“No-one knows what recovery from coronavirus will look like and the Bank now accepts that its own predictions are less helpful than useful.”

At the bank's latest Monetary Policy Committee meeting, members voted unanimously to carry rates at 1% and also to maintain quantitative easing at lb745 million.

Economists said that, even though the bank will probably deliver further asset purchases, it is unlikely to chop interest rates further this year.

Howard Archer, chief economic adviser towards the EY Item Club, said: “It is possible that many MPC members will keep concerns concerning the longer-term outlook for that UK economy.

“Consequently, the EY Item Club believes the financial institution of England may ultimately decide that it has a further role to play in helping the economy develop a sustainable recovery amid likely still challenging and uncertain conditions.

“We expect the Bank of England to announce a further dose of asset purchases either at its September or (much more likely) November meetings, most likely around lb100 billion.”

Critical moment

Meanwhile, Anneliese Dodds, Labour's shadow chancellor, said: “Today's assessment through the Bank of England implies that this is a critical moment for our economy.

“A short-term, post-lockdown rise in spending sits alongside a much more uncertain long-term picture of very low levels of business investment and the prospect of the sharp rise in unemployment.”

The FTSE 100 slipped in early trading as warnings of the longer-than-predicted recovery weighed heavily on the stock market sentiment.