The Bank of England is anticipating that the coronavirus will see the UK economy shrink by more than it has over the last 300 years. The institution also warns that lenders could see losses of up to $100 billion caused by loan defaults.
The predictions are based on the current restrictions to movement being relaxed in June. Bank of England Governor Andrew Bailey believes that even following the lifting of lockdown measures, consumers would likely remain cautious.
Bank of England Expecting Deepest Recession Since 1706
The Bank of England, the central bank of the United Kingdom, has just published its May 2020 Monetary Policy Report. Given that the nation remains under lockdown orders and has just recorded more deaths than the previous European epicenter of the coronavirus, Italy, you can appreciate that the forecast is less than optimistic. [BBC].
Like many other parts of the world, the UK is under lockdown orders. Schools, businesses, leisure facilities, and just about everything else deemed non-essential have been ordered to cease operations.
The action, unprecedented in scale, was always going to have a grave impact on the UK’s economy. However, the Bank of England is anticipating a much deeper recession that most were expecting.
In its May 2020 Monetary Policy Report, the bank predicts that the UK economy will tank by as much as 14 percent over the course of 2020. However, it stresses that the true impact of the coronavirus will be determined by the date movement restrictions are lifted and how quickly UK citizens resume full economic activity.
The bank’s governor, Andrew Bailey, stated that the recovery could be sharp but that the after effects would linger as many people will surely remain cautious for some time. [BBC]
… we’ve also factored that people will be cautious of their own choice… They don’t re-engage fully, and so it’s really only until next summer that activity comes fully back.
Lenders Predicted to Suffer Up to $100 Billion in Losses
As businesses remain shut, the Bank of England has made it easier for banks to lend money to those in need. The report predicts that lenders may lose as much as 3.5 percent of loans to individuals and companies through defaults. [Bloomberg]
This would total a colossal $100 billion. However, the Bank of England is confident that the UK financial system can withstand the aftermath of the pandemic. It wrote that a combination of regulatory reform in the wake of the 2008 financial crisis and government support programs put it in a strong position to absorb losses.