The Bank of England has warned the British economy could shrink by 25% this spring and unemployment more than double as the coronavirus pandemic brings the country to an effective standstill.
Leaving interest rates on hold as the economic crisis unfolds, the central bank said economic activity across the country had fallen sharply since the onset of the global health emergency and the lockdown measures used to contain its spread.
Sounding the alarm over the mounting damage to the economy during the coronavirus outbreak, the Bank said GDP could shrink by 14% for 2020 as a whole.
Threadneedle Street’s nine-member monetary policy committee (MPC) voted unanimously to keep interest rates on hold at 0.1%, the lowest level in the bank’s 325-year history, after using two emergency cuts in March at the onset of the Covid emergency in Britain.
However, in a reflection of the scale of the economic shock, the rate-setting panel was split over increasing the Bank’s £645bn quantitative easing stimulus package, with two members voting for an immediate £100bn increase.
In its first monetary policy report since the onset of the pandemic, the central bank said payments data from debit and credit cards pointed to a 30% drop in consumer spending, while housing market activity had practically ceased.
Although it warned that Britain faced extreme levels of uncertainty over the growth outlook as the country prepares to exit lockdown measures, the Bank said one “plausible illustrative economic scenario” was for a 25% plunge in GDP in the second quarter with unemployment more than doubling to around 9%.
However, it said the sharp fall in activity should be temporary, as economic activity should pick up relatively rapidly as social distancing measures are relaxed. Nonetheless, it warned continuing concerns over the coronavirus would mean precautionary behaviour by families and businesses persist for some time after tight controls on activity are lifted.