The long-term harm to the economy will likely be greater from a no-deal Brexit than from the Covid-19 crisis, the country’s top banker has said.
Bank of England governor Andrew Bailey said the effects of crashing out of the EU on World Trade Organisation (WTO) terms would last for longer than those of the global pandemic.
“I think the long-term effect would be larger than the long-term effect of Covid,” Mr Bailey told MPs on the Treasury Select Committee.
“The models would suggest that the effects of a WTO no-deal trade agreement are longer term. The reason for that is that it takes a lot longer period of time for the real economy to adjust,” he added.
Mr Bailey said: “Covid obviously has a much bigger impact at the moment, in the short run.”
The Covid-19 crisis saw the UK’s economy shrinking by as much as a quarter at one point during the pandemic, as thousands of businesses closed down and were put on Government life support.
The Bank of England’s chief economist Andy Haldane on Monday said that around two-thirds of that loss has been clawed back by the economy.
Several big pharmaceutical companies have been working at top speed to try to find some way to stop the spread of the virus.
On Monday, AstraZeneca became the latest to announce its progress, saying that its vaccine was up to 90% effective.
Mr Haldane told the committee that the vaccine news from AstraZeneca and rivals Pfizer and Moderna, is “extremely good news for the economy”.
He said that the extension of the furlough scheme, which covers large parts of the salaries of workers to keep them on payrolls, was a positive.
Silvana Tenreyro, a member of the Bank of England’s Monetary Policy Committee, said: “The scarring effects are not written in stone, and we should avoid them as far as we can,” adding that policy provisions could help.