Bank of England Governor Andrew Bailey said played down suggestions that the U.K.’s economic rebound is looking robust, saying it ultimately depends on factors that are difficult to foresee.
The comments suggest he’s more wary about the outlook than Chief Economist Andy Haldane, who was optimistic about a V-shaped bounceback last month. Fellow Monetary Policy Committee member Silvana Tenreyro said this week that the recovery will hit a ceiling later this year.
“I’m always a bit nervous about using letters to describe recoveries,” Bailey said. The next phase “is a very big question around what I tend to call natural caution.”
The country’s growth trajectory will be determined by how quickly people return to work, shops, and restaurants, as well as the extent to which permanent damage has been wrought by the pandemic, Bailey said in a webinar on Friday.
That will be linked to medical progress in tackling coronavirus, whether there are second waves and how localized they will be, he said.
The economy likely contracted between 23% and 25% in the second quarter relative to the end of last year, he said. The lifting of lockdown restrictions is now having a positive effect on some sectors, with evidence of new car sales and increased housing market activity, though industries such as hospitality and entertainment are struggling, he said.
The comments top off a gloomy week of economic data for the U.K., with growth picking up less than expected and the country’s fiscal watchdog warning of a coming spike in unemployment.
Wall Street economists are increasingly predicting the Bank of Englandwill take further action to revive growth in coming months, possibly taking interest rates negative for the first time.
Bailey and his colleagues on the MPC will publish updated forecasts at their next policy meeting on Aug. 6.
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