UK economy faces worst decline in 100 years and unemployment crisis, Bank of England warns
6 August 2020, 08:24
The UK economy will see the biggest decline in 100 years and unemployment will soar, the Bank of England has warned.
Announcing its decision to hold interest rates at 0.1%, it warned that it expects the economy to shrink by 9.5 per cent due to the coronavirus crisis.
It also forecast that unemployment will jump significantly, with the rate reaching 7.5% at the end of 2020, but will gradually decline from the start of next year.
This would signal a huge spike in the number of people without work and take the UK back to unemployment rates not seen since the economic crash in 2008.
Its nine-strong Monetary Policy Committee (MPC) voted unanimously to hold rates and released its forecast - that GDP will recover slowly and is not expected to exceed its levels from the end of 2019 until at least the end of 2021.
Rates have already been slashed twice, from 0.75%, since mid-March as part of the Bank's measures to try and keep the economy afloat.
The Bank also agreed to maintain its current quantitative easing programme - creating new money to buy government debt and encourage investment - at £745 billion.
Governor of the Bank of England, Andrew Bailey, spoke in March about the predicted long recovery for the UK's economy following a huge blow from the pandemic - just weeks after he was given the top job.
The value of the pound picked up against the dollar after traders appeared to welcome the decision to hold rates - the crucial indicator of what people pay for borrowing money and what banks pay customers for saving money with them.
The Bank did warn, however, that because of the Covid-19 pandemic it was less certain about its projections.
On its website, a Bank of England spokesperson said: "The outlook for the UK and global economies remains unusually uncertain.
"It will depend critically on the evolution of the pandemic, measures taken to protect public health, and how governments, households and businesses respond to these factors.
"The MPC’s projections assume that the direct impact of Covid-19 on the economy dissipates gradually over the forecast period.
"Given the inherent uncertainties regarding the evolution of the pandemic, the MPC’s medium-term projections are a less informative guide than usual."
