LONDON (Reuters) – Bank of England policymaker Silvana Tenreyro said on Monday that progress in the development of COVID-19 vaccines was only likely to translate into a significant economic boost once they had been widely rolled out in Britain.
Tenreyro struck a more cautious line than the BoE’s Chief Economist, Andy Haldane, who said last week that news of effective coronavirus vaccines had improved financial market conditions and business confidence.
Consumer spending was unlikely to pick up markedly until public health restrictions were relaxed and people felt safe enough to go and socialise, which would not be until vaccines were widely available, Tenreyro said.
“As economists, we often focus on the idea that positive news about the economic situation in the future will lead more confident consumers to spend more today,” she told an event hosted by the Resolution Foundation think-tank and the Money Macro and Finance Society.
“But since the positive news is about future health outcomes, some may be more inclined to postpone spending on many goods and services until vaccines and reduced health risks actually arrive.”
Earlier this month — before news of the vaccines — the BoE forecast Britain’s economic recovery would go into reverse this quarter due to a four-week partial lockdown in England and other restrictions to stem a second wave of COVID-19 cases.
Tenreyro said she still believed the economy was on course to shrink, and stood by her decision to vote for a year-long 150 billion pound ($200 billion) expansion in bond purchases.
“My rationale for the recent QE expansion was to mitigate the risk of any tightening in monetary conditions that might make it harder to bring inflation back to target,” she said.
“The reduction in uncertainty about vaccine production makes it even more essential that we avoid those risks.”
Tenreyro also restated her view that cutting interest rates below zero percent could boost Britain’s economy if needed.
“Apart from the bank lending channel I would expect the other channels to also work well — the exchange rate channel, and the wealth or asset price channel,” she said, based on the effect of negative rates in the euro zone and elsewhere.
The BoE is conducting a review to see if differences in the structure of Britain’s banking system would limit the potential effectiveness of negative interest rates, and other policymakers have raised doubts about the idea.
(Reporting by David Milliken; Writing by William Schomberg; Editing by Catherine Evans)
