The UK is heading towards the biggest recession ever recorded, according to the Bank of England.
If, as planned, the lockdown is relaxed in June, the economy will shrink by around 14% by the end of the year.
The Bank says that the coronavirus pandemic is ‘dramatically reducing jobs and incomes in the UK’ as shown by the scenarios the Bank has drawn up to illustrate the impact of the virus on the economy.
Speaking to the BBC, the governor of the Bank of England, Andrew Bailey, said that there would not be a quick return to normalcy.
Describing the downturn of the economy as ‘unprecedented’, Bailey said consumers would still spend cautiously even then the lockdown is lifted.
"Not all of the economic activity comes back. There's quite a sharp recovery. But we've also factored that people will be cautious of their own choice,” Bailed said.
"They don't re-engage fully, and so it's really only until next summer that activity comes fully back”.
The Monetary Policy Committee (MPC) that sets the interest rates cannot come to an agreement on whether to stimulate the economy with an increased injection.
Despite voting unanimously to keep interest rates at 0.1% - a record low, only two of the nine members voted to increase the quantitative easing to £300bn in the latest round.
The Monetary Policy Report assumes that lockdown measures are gradually eased from June to September, with the economy shrinking just 3% for Q1 of the 2020 calendar year, and experiencing a staggering decline of 25% in Q2. This would also push the UK into its first recession for over ten years.
The economy is expected to contract by 14% for 2020 - the largest decline on record according to Office for National Statistics (ONS) data which stretches back to 1949.
The Bank said that consumer spending has fallen by 30% in recent weeks, with the housing market coming to a near absolute standstill.
In comparison to the global financial crisis over a decade ago, Mr Bailey says that the economy is likely to improve ‘much more rapidly’.
Bailey also praised the furlough scheme and said that, combined with the Bank’s own stimulus initiatives, there would be "limited scarring to the economy".
"The furloughing scheme really does enable people to come back into the economy more quickly so it's a much quicker recovery that we've seen in the past,” said Bailey.
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