Kristen Zanoni  |  August 7, 2020

Category: Covid-19

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Bank of England building - coronavirus recession

The coronavirus pandemic has taken a toll on the economy, as expected, but the actual devastation has been less severe than predicted.

The coronavirus recession has been less astounding than originally projected by the Bank of England. The economic disturbance caused by the coronavirus recession was expected to be much more severe, but the U.K. economy is likely to remain decently resilient, given the major blows to banks and businesses. 

Despite the coronavirus recession, the U.K.’s major banks still have sufficient capital.

According to the Bank of England, the banks will continue to be capable of lending money to customers in need during the coronavirus pandemic. As the coronavirus recession has caused shock waves to the economy, the damage is not as detrimental as first estimated. 

The Financial Policy Committee has released new information that shows that the impact of loss from business and personal loans is minor compared with the Bank of England’s previous prediction.

Throughout the coronavirus recession, government programmes have led banks to loan billions of pounds to those in need during the struggles caused by the pandemic. Some of the financial assistance included mortgage holidays, among others. 

British £10 note with queen's face wearing surgical mask - coronavirus recession

The Monetary Policy Committee (MPC) warned that the economy could potentially decrease by one fifth and unemployment would expand to 2.5 million people by the end of the year, The Guardian reported.

The MPC voted to maintain interest rates at 0.1%. 

Andrew Bailey, the Bank of England’s governor, said the bank was ready to reduce interest rates below zero to spark economic growth. 

The Bank of England has also estimated that the coronavirus recession would cause Britain’s economy to endure lasting effects until the end of 2021.

The recession was thought to have devastated the economy more than it has, but consumers are spending nearly the same as pre-pandemic levels, according to The Guardian. As restrictions have eased, the economy’s welfare is looking better than assumed.

In the beginning stages of the coronavirus recession, Bailey and the MPC expected the economic contraction to be around 14%, the BBC reported, which would make Britain’s economy the worst it had been in 99 years.

However, the predictions for an economic drop are now at 9.5%, according to This Is Money. The MPC projects that the GDP will bounce back in the short term, but it is not likely to return to 2019 levels until the end of 2021. 

The coronavirus recession has led the government to provide furlough schemes as a part of economic recovery.

The Bank of England is on board with the government’s decision to stop furlough schemes by October.

Bailey told the BBC the pandemic would mean job losses are expected, and that it is important that the government helps people move forward. Under the job retention scheme, over 9 million job positions were furloughed. 

Trade unions have pressed Chancellor Rishi Sunak to continue the job retention scheme to prevent considerable job losses, the BBC reported. But Bailey thinks the solution is not to continue the job scheme but to help workers find new jobs to jumpstart the economy.

The economy’s eventual progress is a waiting game, as the changes of the pandemic continue to shift things.

“The outlook for the U.K. and global economies remains unusually uncertain,” the Bank of England said. “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.”

What do you think the economic future holds as the pandemic progresses? Do you predict things will get better or worse in the near future? Let us know in the comments.

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