Britain may face worst economic slump since 1706, Bank of England warns

The coronavirus pandemic is set to plunge the British economy into one of the deepest recessions ever, shaving 14 percent off the country’s gross domestic product, according to a Bank of England forecast.

The central bank said that the coronavirus outbreak has led to an “unprecedented” situation for the global economy. Evaluating the toll the crisis is set to take on the UK, the bank said that apart from a sharp fall in GDP over the first half of the year, it will also result in a “substantial” hike in unemployment.

In real terms, that would mean the nation’s GDP may fall close to 30 percent in the second quarter of 2020 compared to the end of last year, the bank’s latest Monetary Policy Report says. After shrinking around three percent in the first three months of this year, the UK economy is set to face a 25 percent decline in the three months to June. The two successive quarters of contraction would mean that the UK will enter a technical recession, defined as two consecutive quarters of economic decline.

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For the year as a whole, the nation’s economy is expected to contract by 14 percent. It would be the sharpest drop since 1706, according to historical Bank of England data.

On the bright side, the bank predicts that economic growth to rapidly pick up, with the recovery expected to be much faster than after the 2008 economic crisis. The UK’s GDP is set to hit pre-Covid levels in the second half of next year and could further rise three percent in 2022. However, the scenario is built on the assumption that the worst days of the pandemic would be over. The report stressed that the outlook for the economy is “unusually uncertain.”

“Economic prospects are highly dependent on the evolution of the pandemic and how governments, households and businesses continue to respond to it,” the bank’s governor, Andrew Bailey, said in a statement. 

As the central bank decided to leave interest rates intact – at the historic low of 0.1 percent – Bailey said that it could take “further action as necessary” to support the economy amid the coronavirus crisis. While the members of the nine-member monetary policy committee (MPC) voted unanimously to keep interest rates unchanged for now, they were divided on whether to inject more stimulus into the economy. On Thursday, two members of the MPC voted to increase the quantitative easing program by another £100 billion ($123 billion). In March, the committee agreed to increase the stock of asset purchases by £200 billion ($246 billion) to a total of £645 billion ($795 billion).

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