Bank Of England Sparks Hope Amidst Covid-19 Economic Stir

Bank Of England Sparks Hope Amidst Covid-19 Economic

Europe is expecting its economy’s most significant annual contraction since 1720, the year of the South Sea Bubble crisis. The economic turmoil brought by the covid-19 crisis placed businesses and the economy at levels nobody expected.

Amidst the global economic decline, hope was sparked after the Bank of Europe predicted that the economy might recover after the lift of lockdown restrictions next month.

Threadneedle Street recently reported that economic activities might fall by 25 percent in the second quarter and by 14 percent year-on-year because of the crisis. Despite the depressing figure, the Bank of England said that the economy would start to recover after the lockdowns are lifted at the start of next month. The Bank projected that the economy might expand by 15 percent in 2021. The Bank also reported that things would go back to normal by the end of next year.

The Bank also provided its projection of England’s economy during the global financial crisis in 2008-2009. During that time, the Bank had a similar forecast reporting that the economy will recover. One of the biggest problems during the last financial crises was the damage taken by the banking system, affecting the flow of credit to companies as it declines the number of productivity-enhancing investments. During this crisis, banks can perform better in helping businesses by solving short-term cashflow problems brought by government measures.

Financial institutions learned that they might lose more by not allowing lending since there they are expecting long-term scarring of the economy. They might see more firms going bankrupt, and they might swallow more losses.

Andrew Bailey, the Bank’s governor, said he was ramming home this point to lenders at every opportunity.

The Bank sees the v-shaped pattern

The Bank of England saw a v-shaped pattern in the economy. The narrow end is pointed towards the first six months while the upward part takes 18 months. The bank projects that social distancing will continue after the government lifts its covid-19 preventive measures.

The Bank defended their forecast, saying that a forecast is more reasonable that an illustrative scenario. The Bank noted that forecasting is tough in the current circumstances where there is the uncertainty of the date the lockdowns will be lifted, change in behavior of consumers. There is a threat of a second wave of infection.

Analysts saw the banking scenario tending to skew downwards.  

According to Bailey, the Bank of England is looking for new tools as they prepare for the second wave of the spread. The central bank retained its interest at 0.1 percent. Mr. Bailey urged banks to continue lending to save the economy of the region and prevent further losses on credits.

The Bank of England continued its program to buy corporate and government.

The May Monetary Policy report of the Central Bank said that the economy of the region might contract by 25 percent and its unemployment rate to double reaching 9 percent in the second quarter. Europe’s GDP is expected to decline by 14 percent in 2020, its most significant decline to record.

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