The Bank of England’s chief economist has said the UK economy is on track for a V-shaped recovery from the Covid-19 crisis, but warned that a surge in unemployment could nudge the country off course.
Andy Haldane said economic activity had steadily recovered since hitting a trough in April, when the UK was a month into strict lockdown measures that forced mostbusinesses to close.
Speaking during a webinar on Tuesday, Haldane said: “There is a debate about which letter of the alphabet will best describe the path of the economy, with some scepticism about the V-shaped scenario path in the Bank’s May monetary policy report.
“It is early days, but my reading of the evidence is so far, so V.”
He said it followed the worst four-month slump for UK economic growth on record, with gross domestic product dropping 25% between January and April compared with the final quarter of 2019.
But the revival had been helped by stronger than expected consumer spending, which had improved “sooner and materially faster” than the Bank of England predicted in May, Haldane said. That trend has been helped by spending on DIY and household goods, as well as a sharp up-tick in car and home sales which had plunged during lockdown.
However, the Bank’s chief economist said he was aware of a range of risks to the economic recovery, including a potential surge in unemployment, which has so far been limited to an extent by the government’s furlough scheme.
“Of these risks, the most important to avoid is a repeat of the high and long-duration unemployment rates of the 1980s, especially among young people,” Haldane said.
Government figures released on Tuesday showed that 9.3 million people had been furloughed as part of the coronavirus job retention scheme. Meanwhile, more than 2.5 million self-employed workers are claiming income support.
“Taken together, this means that perhaps as much as half the UK workforce is currently either unemployed or underemployed. This, too, has no historical precedent,” Haldane said.
Haldane was the only member of the interest-rate setting monetary policy committee to vote against extending the central bank’s £100bn stimulus programme earlier this month.
However, the chief economist said he was ready to take action if needed. “Like the rest of the MPC, I stand ready to adjust monetary policy, at speed, if needed to support the economy and return inflation to its [2%] target on a sustainable basis,” he said.
Inflation is currently at a near four-year low of 0.5%.