The Bank of England presented both a better and worse outlook for the British economy on Thursday. As the central bank left its monetary policy stance unchanged, policymakers said that they expected the British economy to contract by 9.5 percent this year, a less severe downturn than they indicated a few months ago, and the unemployment rate would peak at 7.5 percent at the end of the year.
But then the economy won’t return to its pre-pandemic level until the end of 2021, they said. Even in three years, the economy will still be smaller than it would have been had the growth rate followed the path it was on at the end of 2019.
The central bank said economic indicators suggested consumer spending was rising but the bank’s governor, Andrew Bailey, added that it was not possible to make confident forecasts based on the current state of the recovery. The latest projections have an “unusually large downside skew,” he said, meaning they included a wide range of possible negative outcomes.
While the central bank assumes the economic impact of the coronavirus will dissipate gradually over the next few years, its forecast is challenged by fears of a second pandemic wave. Even as the British government is encouraging people to eat out and return to their offices, it is putting parts of the country under another round of lockdown restrictions and delaying the reopening of some businesses because of flare-ups in the virus.
Amid speculation in financial markets about whether the Bank of England would adopt negative interest rates, the central bank published some analysis on the policy idea, saying that it would be less effective “at this time” but that negative rates were still an option.