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BoE Chief Warns Against Pessimism

Andy Haldane, who is chief economist at the Bank of England (BoE), has pointed out the dangers of pessimism during the current crisis. This comes as it was revealed that the country´s Gross Domestic Product (GDP) fell by slightly less than predicted.

The Latest Numbers

These comments followed the Office for National Statistics (ONS) revising their estimate of the amount the British economy has shrunk by. The ONS now says that it contracted by 19.8% in the second quarter of 2020, while their initial estimate had been for a 20.4% slump.

Haldane pointed out that the chances of a strong recovery would be put at risk if people were “catastrophising” and focusing solely on the negative aspects rather than looking at the way that the economy is bouncing back.

He spoke about avoiding an “economic anxiety attack” and is looking for businesses as well as policy makers to take a balanced, flexible approach that includes encouraging news as well as any fears for the future.

Haldane thinks that unemployment will rise more slowly than the 7.5% estimate given by the BoE, with the government´s Job Support Scheme (JSS) helping out. However, he also stated that the current resurgence of Covid-19 cases will make the recovery more difficult.

Household Savings Go Up

While the latest figures show the GDP dropping heavily, they also reveal that that household savings in the UK grew in the second quarter. With most shops, bars and restaurants closed due to the lockdown, the chances to spend were limited and people were very cautious too.

The household saving ratio is calculated as the average percentage of disposable income that is saved instead of being spent. This number increased to a record of 29.1% in the second quarter, up from 9.6% in the previous quarter.

Jonathan Athow is deputy national statistician at the ONS. He said that the British economy shrunk by around a fifth in the first six months of 2020, which was far more severe than any other contraction every recorded.

Businesses also greatly reduced their investment levels in the second quarter, with a drop of 26.5%. This is the sharpest drop ever seen and a lot worse than the 9.8% decline in investment that was noted during the crisis of 2008.

Increased use of the debt collection process has also been noted, as more businesses look to recover money due to them as they struggle to get through this period. Thankfully, the JSS plan is more generous for employers and employees than had been anticipated by the BoE.

A Look to the Future

The figures for August are due out next week, and many analysts are looking forward to a record level of growth in the GDP. Yet, the growing number of infections and new lockdown measures being introduced across the UK could slow down the recovery from now on.

Athow pointed out that the new restrictions being introduced means that growth in the fourth quarter could leave the GDP about 5.5% less than it was before the crisis began.