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The Bank of England Looking for a Fast Recovery

The latest Bank of England report has confirmed that the British economy is going through its biggest crisis in centuries. Yet, they have also given hope that the bounce back later in the year will be strong and fast.

The Current Situation

The update from the BoE provided the sort of devastating figures that had been expected, as the country’s businesses have suffered during the Covid-19 lockdown. Activity fell by 3% in the initial 3 months of 2020 and a 25% collapse is predicted for the second quarter.

Overall, they predict a drop of 14% for the full year. This would make it the worst year in living memory, with some analysts already comparing it to the Great Frost of 1709, when extremely cold weather across Europe brought the continent to a standstill and caused economic chaos.

The current predictions for unemployment numbers suggest that this could reach 9% in the second quarter of 2020. If this is the case it will be better than the predictions of 20% that we have seen before now.

What to Expect Next

However, the BoE also believes that the lifting of lockdown restrictions will lead to a faster recovery than would normally be the case during a recession. They expect the economy to grow by 15% next year, meaning that by the end of 2021 it should be back to normal levels.

This means that they are expecting a V-shaped dip in the economy, with the downward trend lasting for 6 months and the upward movement for 18 months.

It has been suggested that the BoE may be over-optimistic in their predictions, though. This follows on from similar complaints after the 2008/9 crisis, when they were accused of painting too optimistic a picture of the possible recovery timescales.

One of the main differences this time is that the banking system hasn’t been seriously damaged. This means that banks can help companies that have been hurt, by providing them with credit to get through this difficult period.

The BoE has already advised banks that not lending to companies will lead to longer-term harm. Governor Andrew Bailey has pointed out that he is getting this point across to lenders as often as possible.

It is worth noting that UK lenders have already agreed to £5.5 billion for 33,812 small and medium-sized businesses under the government’s coronavirus business interruption loan scheme. Others are choosing to collect debts and are comfortable paying collection agency fees to keep going.

What Else Might Happen?

We could see some form of economic stimulus coming from the BoE in the next month or so. At the time of writing, it is still unclear what form this could take.

There have been suggestions that interest rates might be cut in the UK, to help stimulate the economy. Since rates are at 0.1% just now, this would almost certainly push them into negative territory.

Bailey says that this is unlikely, but that he doesn’t think that it is something that should be ruled out at this stage.