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BANK OF ENGLAND WARNS U.K. SET FOR “WORST ECONOMIC PERFORMANCE IN 300 YEARS”


Koon Yew Yin 7 May 2020 

Covid 19 pandemic is affecting all the countries around the world. A few US scientists predicted that Covid 19 pandemic will last for another 2 or more years until a vaccine is available. Currently there are 3.77 million cases and 264,000 deaths in the world. Among all the countries, US has the greatest number of cases. Both the number of cases and deaths are increasing at an alarming rate. It looks like a US recession is inevitable.     

London Financial Times forecasts: The European Union’s (EU) economy will plunge 7.4 per cent this year and unemployment will skyrocket to 9 per cent in “the deepest economic recession in its history”.

At the meantime, the Bank of England is warning that the U.K economy could suffer its worst performance in 300 years due to the impact of the COVID-19 pandemic.

The central bank said that the economy could shrink by 14 percent in 2020, based on estimates of the lockdown being eased in June, which would push the country into its deepest recession on record.

The unemployment rate could reach up to nearly 10 percent as the coronavirus lockdown continues to cause damage to the economy. The Bank said the COVID-19 pandemic was “dramatically reducing jobs and incomes in the UK.” 

It comes as the Bank’s Monetary Policy Committee, which sets interest rates, announced that rates would remain unchanged at the historic low of 0.1%.

Despite the bank’s best attempts to protect the economy from the slump in economic growth as a result of the pandemic, thousands have been made redundant by companies including British Airways, Virgin Atlantic and Debenhams over the past week and over six million employees have been furloughed, where the government pays 80% the salary of workers who would not be otherwise employed during the lockdown.

However, in its latest Financial Stability Report, the Bank claims U.K. households have entered the lockdown in a stronger position than before the 2008 financial crisis due to extensive support packages, including payment holidays on mortgages and credit cards.

The Bank of England also believes that U.K. banks are strong enough to keep lending, which it says will “support the economy and limit losses to themselves”.

The Bank said: “We are offering more long-term funding to banks that increase their lending.

“In particular, we will give extra funding to banks that offer more lending to small and medium-sized companies. These firms often need more support in times like these.”

Governor Andrew Bailey said: “However the economic outlook evolves, the Bank will act as necessary to deliver the monetary and financial stability that are essential for long-term prosperity and meet the needs of the people of this country.

“This is our total and unwavering commitment.”

The Bank also made a forecast for the global economy, claiming that it could shrink by 20 percent this quarter due to “the spread of the virus and the measures taken to protect public health have caused a substantial reduction in activity around the world.”

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