New modelling conducted by the United Kingdom’s central bank suggests the country faces its worst recession since Queen Anne united England and Scotland more than 300 years ago.
In its monetary policy statement for May, the Bank of England cautioned the “severe economic and financial disruption” caused by the coronavirus will likely lead to a “very marked” drop in global economic activity.
Britain itself faces a particularly significant downturn, the bank noted, with economic indicators showing household spending has fallen 30 per cent.
Cconsumer confidence has also plummeted and housing market activity has “practically ceased”.
Unemployment has also jumped dramatically.
The government’s job retention program is predicted to save many jobs but Britain’s unemployment rate is still tipped to hit 10 per cent.
The effects on the country’s GDP will be severe.
“While there are wide bands of uncertainty around any estimates of activity at the present time, UK GDP is expected to be close to 30 per cent lower in 2020 quarter 2 than it was at the end of 2019,” the report said.
“UK GDP is expected to have fallen by around 3 per cent in 2020 quarter 1 and then to fall by a further 25 per cent in quarter 2.”
That would reportedly be the UK’s steepest fall in economic activity since the Great Frost of 1709 – when Europe suffered through its coldest winter in 500 years.
Promising signs for recovery
Although the forecast decline in economic activity will be historically devastating, the Bank of England predicts the recovery will be “relatively rapid”.
That recovery will, however, hinge on the coming months, and rely on a gradual easing of social distancing measures coupled with “very significant monetary and fiscal stimulus”.
“The timing, speed and extent of the recovery in activity will be affected by the measures that are taken around the world both to contain the spread of COVID‐19 and to support the global economy,” the bank’s report noted.
“The extent to which GDP recovers will also be affected by developments in the economy’s supply capacity.”
The report also noted that supply capacity could take longer to recover than modelling suggested if businesses were not confident that successfully innovations would lead to higher demand.
With little motivation to invest in innovation, businesses were unlikely to do so, potentially constraining growth.