The UK economy could heading for the deepest recession on record as the country reels from the effect of coronavirus.
Growth could shrink by 25 per cent this spring and unemployment more than double as the coronavirus pandemic brings the country to an shuddering standstill, the Bank of England warned.
Instead of a quick recovery when restrictions are lifted, the Bank fears it could take some time for the confidence to recover and for people to start spending again.
In its first official outlook on the toll taken on the UK economy by the Covid-19 pandemic, the Bank cautioned over a "very sharp" fall in GDP over the first half and a "substantial" hike in unemployment.
In the forecast, the Bank said one “plausible illustrative economic scenario” was for a 25 per cent plunge in GDP in the second quarter with unemployment more than doubling to around nine per cent.
Sounding the alarm over the mounting damage to the economy during the coronavirus lockdown, the Bank said GDP could shrink by 14 per cent for 2020 as a whole.
The Bank’s nine-member monetary policy committee (MPC) voted unanimously to keep interest rates on hold at 0.1 per cent, 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.
But in a signal of the depth of the economic shock the the committee split over increasing increasing the Bank’s £645 billion quantitative easing stimulus package, basically printing more money with two members voting for an immediate £100 billion increase.
In its first monetary policy report in the pandemic the UK’s central bank said debit and credit card data pointed to a 30 per cent drop in consumer spending, while housing market activity had practically ceased.
Until now most experts have predicted that economic activity should pick up relatively rapidly as social distancing measures are relaxed.
But the bank warned continuing concerns over coronavirus would mean precautionary behaviour by families and businesses persist for some time even after tight controls on activity are lifted.
