The Bank of England has warned over an economic hit from coronavirus of close to 30% by the summer as it left interest rates at the historic low of 0.1% after recent emergency action.
The Bank said it expects gross domestic product (GDP) to fall by around 3% in the first three months of 2020 and then plunge by a further 25% in the second quarter, although it cautioned over uncertainty over the forecasts.
In its first official outlook on the toll taken on the UK economy by the Covid-19 pandemic, the Bank cautioned over a “very sharp” fall in GDP over the first half and a “substantial” hike in unemployment.
We have published our quarterly #MonetaryPolicyReport alongside an interim #FinancialStabilityReport. Together, they provide a scenario for the path of the UK economy in the light of Covid-19 and assess the financial system’s resilience to that scenario. https://t.co/3FIVG6rG2epic.twitter.com/434WIhj8JX
— Bank of England (@bankofengland) May 7, 2020
It said the fall should be temporary and that activity should “pick up relatively rapidly” as lockdown is eased, but added that it would “take some time” for the economy to recover.
The Bank’s nine-strong Monetary Policy Committee voted unanimously to hold rates at 0.1%.
It also kept its quantitative easing (QE) programme to boost the economy unchanged at £645 billion after unleashing another £200 billion of bond-buying in March.
But two members of the MPC voted to increase QE by another £100 billion in a sign that more may be on the way soon.
Rates have already been slashed twice, from 0.75%, since mid-March as part of the Bank’s measures to try and keep the economy afloat during what is expected to be the steepest recession in living memory.