The governor of the Bank of England has told Scottish business leaders it is trying to spread the shock of the coronavirus crisis, so that the economic downturn does not lead to chaos.
Speaking in a webinar with 190 members of the Scottish Chambers of Commerce, Andrew Bailey indicated that a continued UK recession was likely this winter.
He warned the UK economy was in “a very difficult period” and the trajectory for any recovery would be revised in the central bank’s February forecast.
Bailey said that unemployment was probably closer to 6.5% than the official 4.9% UK rate from the Labour Force Survey.
Quantitative easing will continue, with a further £150bn of asset purchases to be spread through this year, in addition to the £300bn made last year.
Bailey also noted a possible move to negative interest rates, stating that they had not been tried anywhere in the retail banking market, with IT systems and processes perhaps not ready to cope yet.
The Bank of England’s policy is to try and spread the impact of the pandemic over time, he explained to the webinar audience.
“If we had left the impact of this shock to play out over one year, it would have been unbearable, it would have been chaos.
“So the thrust of what we’re doing is to spread this over time, what I can’t do is to say over what time, that’s not a judgement it’s possible to enter into.”
As for Brexit, Bailey said it was too early to judge the short-term impact, but things would become clearer in the next two or three weeks.
While he welcomed the trade deal struck with the EU on Christmas Eve, he added that the long-term impact would force major changes in the economy.
He also pointed out high levels of savings in the economy, because many have retained previous levels of income but not had the opportunity to spend as much as usual.
“It’s much more pronounced among better off people, with fewer opportunities to spend… there’s an age-related effect there as well,” he commented, adding that it’s hard to say what’s going to happen when restrictions are lifted.
“Are people going to go on a spending spree because they’ve been cooped up and restrained over quite a long period of time? Or are they going to say ‘this has been a salutary lesson, and therefore I should hold higher savings?’