As the Bank of England reports that the downturn in the UK economy is less severe than expected, but is likely to take longer to recover, Professor Abhinay Muthoo of the Department of Economics comments that this is positive news, but it still leaves a lot of room for uncertainty.

Professor Muthoo said: “The Bank of England has this morning published its reports that say that the UK economy will contract this year (due to Covid-19) by 7.5 percent, which is much less compared to its initial estimate a few months back of a 14 percent contraction in GDP. It goes on to note that recovery will however take longer, with GDP only getting back to pre-Covid levels at the end of 2021.

“While this is encouraging news, the fact remains that there is still a huge amount of uncertainty about the virus, as it continues to circulate. While easing of lockdown restrictions has got some parts of the economy moving, consumer spending in particular remains relatively low. Fear and a lack of confidence are two key factors. There are still some unknown unknowns about the virus, and about the seriousness of a potential spike in the winter, and in turn about the manner and speed of economic recovery over the coming 12 months or so.

“The Bank of England and the UK Government must continue to strongly support people and businesses, over the next 12 months, using all the tools at their disposal, and thinking creatively and out the box. These are unprecedented times, and calls for unprecedented economic and social policy measures. To use the UK Chancellor Rishi Sunak’s phrase, the Government must continue to do ‘whatever it takes.’”

6 August 2020

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