Tough coronavirus restrictions stalled UK’s economic recovery, says Bank of England chief economist

Tougher restrictions brought in to wrestle down the second wave of coronavirus started derailing the economic recovery in October, according to the Bank of England’s chief economist.    

Andy Haldane told MPs this ‘rollercoaster’ year will be capped with a ‘small contraction’ after local measures and the current national lockdown throttled activity in the wake of a thriving summer. 

But he hailed recent vaccine breakthroughs as cause for optimism as hopes remain for a bounce-back in levels of GDP next year. 

Speaking before the Treasury Select Committee via Zoom this afternoon, he said that at the start of October activity started slowing because of both ‘voluntary social distancing’ and the ‘progressive tightening of the tiered restrictions’. 

Mr Haldane added: ‘With the announcement of the national lockdown, that caused a further shedding down of our projections for the fourth quarter. We’re now projecting a small contraction in activity for the fourth quarter.

‘Plainly there’s huge amounts of uncertainty around these near-term projections, but so far the data we’ve had on the economy since the report has been consistent with the slowing, potentially stalling, of the recovery.’

However he pointed to the Bank’s November forecast which was optimistic about a rapid recovery in 2021 and GDP for to bounce back to pre-pandemic levels. 

He said this positive forecast was built on two pillars – the loosening of restrictions and better coronavirus treatment.

Recently announced breakthroughs in vaccine trials came too late to be factored into the Bank’s latest forecast, but are nonetheless cause for optimism.

Governor Andrew Bailey said: ‘It’s excellent news. Speaking personally, it felt like the first time in eight or nine months that there is some lights coming at the end of the tunnel.’

Mr Haldane rejected concerns from Labour MP Angela Eagle that the vaccine news could spur people to adopt a more relaxed approach to the rules.

He said: ‘My general sense ahead of the vaccine news was that people were a little too fearful of the future and that uncertainty was having quite a damaging and dampening affect on their willingness to spend and their willingness to get out and about. I hope the vaccine news has helped to offset some of that pessimism.’ 

The scientists’ breakthrough paves the way out of lockdown and for a return back to normal life, with four million doses of the Oxford vaccine 4million doses ready to be administered before Christmas if the jab is approved.

The Government has in total ordered 100million doses expected to cost just £2 each and can be stored cheaply in a normal fridge, unlike other jabs made by Pfizer and Moderna.

It’s also a fraction of the price, with Pfizer’s costing around £15 per dose and Moderna’s priced at about £26 a shot. 

The Covid-19 crisis saw the UK’s economy shrinking by as much as a quarter at one point during the pandemic, as thousands of businesses closed down and were put on Government life support.  

Mr Haldane said that two-thirds of that loss has been clawed back by the economy. 

The record surge in the third quarter came after a record fall in the second quarter, of 19.8 per cent. 

He said that the extension of the furlough scheme, which covers large parts of the salaries of workers to keep them on payrolls, was a positive.

But Silvana Tenreyro, a member of the Bank’s Monetary Policy Committee, said: ‘The scarring effects are not written in stone, and we should avoid them as far as we can,’ adding that policy provisions could help.