UK economy on course for V-shaped recovery, says Bank of England economist

According to the chief economist at the Bank of England, the UK economy is on the way to a strong V-shaped recovery thanks to a faster than expected recovery, but "significant" risks remain.

Andy Haldane, who also sits on the bank's rate committee, said the recovery in the UK and worldwide came "earlier and faster" than expected.

In a webinar speech on Tuesday, Haldane said the UK economy is benefiting from a rebound in consumer spending as the blocking restrictions gradually ease.

He said, "It's still early, but I'm reading the evidence so far, so V."

He added: "The recovery in both the UK and the global economy took place somewhat earlier and much faster than in the scenario of the May monetary policy report – in fact earlier and faster than any other common macroeconomic forecaster."

Andy Haldane
Andy Haldane is Chief Economist at the Bank of England (House of Commons / PA)

However, he said that if unemployment turned out to be higher than expected, there would be a "vicious circle" in the economy and warned of a return to mass youth unemployment in the 1980s.

He said: “The risks to the economy remain substantial and bilateral.

“Although I believe these risks are somewhat more balanced than in May, they remain downward.

"Of these risks, the most important thing is to avoid repeating the high and long-term unemployment rates of the 1980s, especially among young people."

His comments come after the bank recently announced that gross domestic product will drop 20% in the first half of the year, well below the 27% forecast in its May forecast.

However, at the time, Governor Andrew Bailey warned of "getting carried away" by signs that the recession may not be as steep as expected, and the bank started another £ 100 billion quantitative easing (QE) to boost the economy.

Mr. Haldane was the only one on the nine-member monetary policy committee to vote against an increase in QE at the June meeting.

In his speech, he said that if the economy continues to recover along a similar path while lockdown measures continue to weaken, the 8% loss in annual GDP could be far less than initially feared, compared to 17% that was forecast in May .

However, he warned that part of it could be due to pent-up demand, as well as massive government support to households and businesses through the 80% wage leave program.

With nine million workers currently on leave, there is a risk of unemployment rising when government support measures end, which could affect the path to recovery.

Mr. Haldane said he was "open minded" about further measures to boost the economy.

Official figures also showed on Tuesday that the economy shrank more than first thought between January and March, by 2.2% – the largest decline since 1979.

Data shows that GDP shrank by a record 20.4% in April, but Mr. Haldane said this is an "old story" as Britain and the global economy are now fully recovering from the crisis.

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