UK: unemployment to double, economy to shrink by 14%

UK unemployment to double and economy to shrink by 14%, warns Bank of England.

The Bank of England has warned the UK economy may shrink by 25% this spring and even unemployment more than double as the Covid-19 pandemic brings the country. The central bank said economic activity across the country had fallen sharply since the onset of the global health emergency and the lockdown measures used to contain its spread.

The Bank said GDP could shrink by 14% for 2020 as a whole.

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UK: unemployment and economy situation

Threadneedle Street’s nine-member monetary policy committee (MPC) voted unanimously to keep interest rates on hold at 0.1%, the lowest level in the bank’s 325-year history. But the rate-setting panel was split over increasing the Bank’s £645bn quantitative easing stimulus package, with two members voting for an immediate £100bn increase.

In its first monetary policy report since the onset of the pandemic, the central bank said payments data from debit and credit cards pointed to a 30% drop in consumer spending, while housing market activity had practically ceased. Although it warned that Britain faced extreme levels of uncertainty over the growth outlook as the country prepares to exit lockdown measures, the Bank said one “plausible illustrative economic scenario” was for a 25% plunge in GDP in the second quarter with unemployment more than doubling to around 9%.

However, it said the sharp fall in activity should be temporary, as the economic activity should pick up relatively rapidly as social distancing measures are relaxed.