The UK economy is set for an “incomplete V-shaped” recovery from the coronavirus pandemic with consumer caution and soaring unemployment hindering any bounce-back.
In a webinar speech, Bank of England interest rate-setter Silvana Tenreyro predicted an “interrupted” V-shaped recovery as an initial rebound in activity stutters towards the end of the year.
She said the first quarterly growth rebound will come between July and September as lockdown restrictions are loosened further, with data predicting a sharp pick-up in purchases held back due to enforced closures.
But she warned: “This will be interrupted by continued risk aversion and voluntary social distancing in some sectors, remaining restrictions on activities in others, and in general by higher unemployment.”
She suggested the recovery is expected to slow at the end of the year as rising joblessness leads to falling consumer spending and social distancing is maintained.
The policymaker said: “I expect voluntary social distancing to continue to drag on consumption in sectors where the perceived risk of spreading Covid-19 remains high, such as hospitality and travel.
“Recent survey data suggests a majority of people would still be uncomfortable going to indoor restaurants or cinemas, for example.”
Her comments follow official data on Tuesday showing that gross domestic product (GDP) grew by a meagre 1.8 per cent in May, leading to warnings of a slower and more protracted recovery.
A fall of up to 20 per cent in GDP between April and June is forecast, though activity is set to rebound more strongly in the third quarter.
Fiscal watchdog the Office for Budget Responsibility said on Tuesday that Britain’s economy may not fully recover until 2024.
