‘Hard yards’ ahead for UK economy as second coronavirus wave hits, Bank of England governor warns

‘Things have become even more stark’ in last two months, says Andrew Bailey

The UK is not going through a v-shaped economic recovery and the "hard yards" are still ahead as a new wave of coronavirus cases hits, the governor of the Bank of England has warned.

"Some sectors of the economy have recovered much more rapidly than others and some are still struggling to recover, for well-known reasons," Andrew Bailey told the House of Lords Economic Affairs Committee.

“My view is the recovery will take time... The hard yards are still ahead of us and, unfortunately,  since we first said that back in August, things have become even more stark,” Andrew Bailey said.

“We have seen quite a strong recovery as the lockdown restrictions have been lifted, but it's a very uneven recovery, whatever the aggregate number looks like, it hides a very uneven pattern.”

The economy remains between 9 and 10 per cent below where we were at the end last year, according to the Bank's best estimate.  

"Nine per cent is a massive number," Mr Bailey said. "Any talk of a v-shaped recovery has to be put into perspective."

The UK faces two major obstacles to growth, he said. First, a second wave of coronavirus cases that will result less activity due to further restrictions and because people are worried about their health.

"Second... we saw a very fast recovery because activity was put on hold and then pretty much the same activity returned."

"Now have to ask the question, to what extent will Covid have a lasting impact in the sense that there will be structural change resulting from it? Either because there are businesses that are not able to survive or, even more fundamentally, because there are activities we used to undertake that we just don't undertake any more and won't go back undertaking for the foreseeable future.

"It's that structural change which of course is much more difficult in the economic context because it can cause persistent unemployment."

Asked whether he agreed with the International Monetary Fund (IMF) that governments should take advantage of low borrowing rates to finance investment and encourage the recovery, Mr Bailey said he would not comment directly on fiscal policy.

However, he added: "There is scope to use the public finances within that framework and I think the balance for all countries is using public finances aggressively in the teeth of the crisis and then having a view of what I’d call the longer-term sustainability."

Mr Bailey’s comments came after new figures showing redundancies jumped to a 10-year high in September.

More economic pain will increase pressure on the Bank’s Monetary Policy Committee to cut its key interest rate into negative territory for the first time. The Bank recently wrote to high street to lenders asking how prepared they are  to implement negative rates.