The economy is facing its darkest hour because of the third COVID-19 lockdown caused by the newly detected strain. This hiccup could delay the recovery of the country, the Bank of England governor has warned.
On January 12, Andrew Bailey echoed the warnings from Chancellor Rishi Sunak who said that the economy “is going to get worse before it gets better.”
Bailey said that the country would be able to bounce back, but only after the lockdown had ended and the worries about the spread of the new coronavirus strain had settled.
He said: “There’s an old saying about the darkest hour is the one before dawn. [We’re] in a very difficult period at the moment and there’s no question that it’s going to delay, probably, the trajectory,” referencing Winston Churchill’s use of the phrase back in 1940 after the evacuation of Dunkirk.
Bailey also made an online speech to the Scottish Chambers of Commerce.
He stated that the shape of recovery would follow the forecast that was made by the Bank’s monetary policy committee or MPC in November 2020, although it would be delayed.
The governor added that the unemployment rate would now be lower than he expected, as he previously predicted that it would hit 7% to 8% last year. This change of numbers came after the government extended its job protection program and added other measures to secure household incomes.
However, despite the added measures, the rate will still be above 4.9%. This is amid concerns that the United Kingdom will suffer a double-dip recession after the anticipated falls in GDP during the last three months of 2020 and the first three months of 2021.
Baily said that the number was already higher, this is despite the measures that Sunak has announced in his speech, including a £4.5 billion assistance for the hospitality sector.
The MPC is scheduled to meet in early February to talk about how the central bank can help protect the UK economy during the month-long lockdown, including whether the interest rates should be cut to below zero. This is a move that could help ease the borrowing costs on businesses and on households.
Bailey admitted that he was skeptical that a cut from the 0.1% would not be noticeable, he argued that it would make the current situation worse. He said that there were a lot of problems with cutting the interest rates into negative territory and this type of decision can hurt the banks.
At the meeting that was held in November 2020, the nine-strong committee voted to pass a £150 billion stimulus package to aid in the recovery of the economy.
In December 2020, the committee stated that it would wait for more evidence of a downturn and consider the Brexit trade deal’s impact because they pass more funds to the stimulus package.
Bailey stated that the Bank had seen evidence of disruption that was mainly caused by the UK’s departure from the EU this year, but it was not clear how persistent the delays would be by next month.