Yahoo Finance Bank of England policymaker refutes Haldane's V-shape recovery forecasts
The UK economy will not bounceback in a V-shape, according to a senior Bank of England official in contradiction with the official prediction of the central bank's chief economist.
Policymaker Silvana Tenreyro, who sits on the Bank's Monetary Policy Committee, said the recovery would be an "incomplete V" because of an increase in unemployment and consumers' wariness of going out and spending for health reasons.
Her view comes as the starkest contradiction by an official yet of chief economist Andrew Haldane's continued insistence that the economy would make a V-shape return to its trajectory prior to the virus hitting.
"Assuming prevalence of [covid] 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," she said.
She also said there were already signs of a sharp recovery in goods that had been unavailable during the lockdown, adding: "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."
Unemployment is causing severe concerns among policymakers - even Haldane. The fear is that there will be a major increase in layoffs in October when the state-sponsored furlough scheme comes to an end. The Office of Budget Responsibility, which advises the government, yesterday predicted a rise in the unemployment rate to as high as 13% compared to the current 4%.
She was speaking after inflation data had creeped up surprisingly due to an increase in demand for video games and other leisure activities during the lockdown. However, she predicted prices would continue to come under downward pressure amid "considerable downside risks" for demand.
"I remain ready to vote for further action as necessary to support the economy," she said.
In her webinar to the London School of Economics, she described how research into the likely impact of covid had alighted somewhere between the massive impact of the Spanish Flu at the end of World War I and the more country-specific and the deep but more short term effects of Sars in 2002-4, Mers in 2012, swine flu in 2009 and Ebola in 2014.
One of the key problems of predicting the impact on people's behaviour was the difficulty of disentangling the impact on consumption of actual cases of flu in a society with social distancing and lockdown measures aimed at avoiding outbreaks.
