The Bank of England has moved to calm fears over coronavirus triggering the deepest recession for 300 years.
Governor Andrew Bailey said the downturn due to lockdown was ‘very sharp’, but said the Bank is buying up a ‘much larger’ stock of government debt than could have been ‘imagined’ during the credit crunch.
The enormous programme, purchasing at least £200billion of state debt, should help keep interest rates on the borrowing low.
Mr Bailey’s comments, in an interview on ITV’s Peston show, came amid increasing alarm at the impact on the economy and public finances, with warnings the UK is facing the worst recession since the Great Frost of 1709.
But Tories have insisted that taxes should not be hiked to fill the gap, with former party leader Sir Iain Duncan Smith saying borrowing to be treated like a ‘wartime debt’.
GDP is forecast to slump by 25-30 per cent this quarter, and millions of jobs could be destroyed – with no guarantees about the recovery.
Official figures yesterday showed a 5.8 per cent fall in March alone – even though the lockdown was only fully in force for a week of that month.
The government’s Office for Budget Responsibility watchdog is due to update its own grim estimates later. The IFS said it expects ‘the recession to end all recessions’.
Experts have warned that the government faces borrowing more than £300billion this year, as tax revenues plunge, benefits rise, and it bails out businesses and workers.
Governor Andrew Bailey said the downturn due to lockdown was ‘very sharp’, but said the Bank is buying up a ‘much larger’ stock of government debt than could have been ‘imagined’ during the credit crunch
Asked about the data, Mr Bailey said: ‘Well, I think it tends to confirm that we’ve got a very sharp move into recession and it was quite sudden, which is obviously what we’ve all observed from the shutting down of the economy so, to be frank, we’re not really surprised by that number at all.’
Pressed on the debate over whether a new round of austerity would be needed to deal with the economic fall-out of the crisis, Mr Bailey said: ‘Obviously, it’s not for the Bank of England to comment on fiscal policy.
‘What I would say is that I think there are choices, and I think those choices will be looked at very seriously.
‘I think one of the reasons that the Bank of England obviously acquiring a much larger stock of government debt than if you go back to the financial crisis of 10 or 12 years ago would have been imagined, is that I think what we can do, providing the overall credibility of the framework remains in place, and independence is very important to that point, is that we can help to spread over time the cost of this thing to society.
‘And that to me is important. We have choices there and we need to exercise those choices.’
Asked if he felt the costs of the lockdown were worth paying compared with the potential second peak in infections, the Bank governor said: ‘I do think that they are right to be cautious on this front from an economic point of view.
‘Because I think that the risk of a second, a big second spike, is that it could damage public confidence in ways that would then have a much longer lasting effect, and therefore a much longer lasting effect on the economy.
GDP is forecast to slump by 25-30 per cent this quarter, and millions of jobs could be destroyed – with no guarantees about the recovery
‘Now, of course, let me be clear and I’m not remotely near to being an epidemiologist so I listen and watch and absorb what’s said, none of us can tell what’s going to happen as this gradual lifting of restrictions is going to happen.
‘But I think were there to be a substantial second wave, it would damage public confidence and it would then obviously rebound back into the economy. So, the Government is right in my view to be duly cautious about that part.’
In interviews yesterday, Mr Sunak said it was ‘very likely’ the UK is facing a ‘significant recession’.
He told the BBC: ‘A recession is defined technically as two quarters of decline in GDP.
‘We’ve seen one here with only a few days of impact from the virus, so it is now very likely that the UK economy will face a significant recession this year and we are in the middle of that as we speak.’
Former Cabinet minister Sir Ian told the Times that after the Second World War the debt was allowed to subside slowly over time.
‘What we cannot do is exit from this and enter into a period of clawback. That would defeat the objective of growing the economy. Growth is going to be critical,’ he said.