Bank forecasts significantly stronger than in May

Although the Bank of England today upgraded its forecasts for GDP significantly, its projections still suggest the UK has experienced one of the largest economic hits among rich countries, the Resolution Foundation said today (Thursday) in response to the Bank’s Monetary Policy Report.

The Bank notes that in its central case – in which a rapid recovery is underway this quarter – the economy is still expected to shrink by 9.5 per cent this year. Although this would still be the biggest contraction in around a century, it is markedly stronger than the 14 per cent fall expected by the Bank in May. Nonetheless, the Bank expects next week’s GDP release to show the economy contracted by nearly 23 per cent in the first half of this year, a larger fall than any other rich country according to available OECD data. Although the Bank’s forecasts imply the UK economy will move back towards its pre-pandemic growth path in short order, it predicts the crisis will cause a permanent loss in output of around 1.5 per cent. Meanwhile, unemployment is expected to remain above levels seen at the start of this year until 2023 – after reaching its highest level in more than eight-years (of 7.5 per cent) in the fourth quarter of this year.

Against this troubling backdrop and fears about a possible second wave of the virus, the lack of further policy announcements from the Bank’s Monetary Policy Committee confirms that the urgent action needed to support the economy will need to come from Downing Street rather than Threadneedle Street. The priority here is extra support for the hardest hit sectors, including job subsidies, a cancellation of the planned cuts in the generosity of UC in April next year, and further support for firms.


James Smith, Research Director at the Resolution Foundation, said:

“While today’s forecasts from the Bank of England now point to a smaller initial economic hit from the coronavirus crisis than it predicted back in May, they still make troubling reading with the UK expected to see the largest fall in GDP among rich countries.

“But with rates mired at all-time lows, the Bank can do little to help support the economy. Instead, the bold steps needed to help the economy – and particularly the labour market – will have to come from the Government.

“Urgent action is needed from the Chancellor to support jobs while also helping those who are unlucky enough become unemployed.”