LONDON (Reuters) – Bank of England policymaker Silvana Tenreyro said Britain’s economic recovery would probably take the shape of an “incomplete V” as consumers stay wary of the coronavirus, social distancing rules curb activity and unemployment rises.
“Behavioural responses mean that the UK economic outlook will continue to depend on the global and domestic spread of COVID-19,” Tenreyro said.
“Assuming prevalence gradually falls, my central case forecast is for GDP to follow an interrupted or incomplete ‘V-shaped’ trajectory, with the first quarterly step-up in Q3.”
Tenreyro was one of the eight members of the BoE’s nine-strong Monetary Policy Committee who voted to increase the central bank’s bond-buying programme by 100 billion pounds ($126 billion) last month.
BoE Chief Economist Andy Haldane, who cast the lone vote against more stimulus, has described the shape of the recovery as “so far, so V”, although he warned there were big risks to the outlook from an expected jump in unemployment.
Data published on Tuesday showed Britain’s gross domestic product grew by a slower than expected 1.8% in May from April, when it slumped by 20%. The government’s budget forecasters said the economy could shrink by as much as 14.3% this year.
Tenreyro said she was not putting much importance on May’s weak GDP growth figure and spelled out what she believed would be an initial bounce-back followed by a slowdown.
“We are already seeing indications of a sharp recovery in purchases that were restricted only because of mandated business closures,” said in a speech during an online event organised by the London School of Economics.
“But I think that this will be interrupted by continued risk aversion and voluntary social distancing in some sectors, remaining restrictions on activities in others, and in general, by higher unemployment.”
Tuesday’s projections by the Office for Budget Responsibility saw the unemployment rate rising as high as 13%from just under 4% in the most recent reading.
Tenreyro said downward pressure on inflation was likely to persist for sometime and cited “considerable downside risks” for demand. “I remain ready to vote for further action as necessary to support the economy,” she said.
The BoE’s next policy decision is due to be announced on Aug. 6.
(Reporting by Andy Bruce; Writing by William Schomberg)
