The governor of the Bank of England Andrew Bailey has warned the UK's economic recovery from the coronavirus crisis will be longer and harder than expected.
He wrote in The Guardian: “The risks are undoubtedly on the downside for a longer and harder recovery. It is also possible that the pace at which activity recovers will be limited by continued caution among households and businesses even as official social distancing measures are relaxed.”
Earlier this month the Bank said that under one plausible scenario, the economy could shrink by a quarter between March and June - and suffer its biggest annual fall in output in more than 300 years - but largely recover by late next year.
Bailey emphasised this scenario hinged on life getting back to normal relatively quickly.
“This depends on how the measures continue to be eased, what degree of natural caution is shown by people, and how much longer-term damage is done to the economy,” he added.
Bailey has shied away from idea of cutting official interest rates to below zero for the first time in the Bank’s 326-year history and said that a fresh wave of money creation methods will be needed.
Bailey says more economic support is likely to come in the form of quantitative easing (QE) - in which the Bank buys government bonds from investors, pumping money into the economy in the process.
Since the crisis began in March, the Bank has cut official interest rates to 0.1%, announced a £200 billion expansion of QE, made moves to ease the financial pressure on large companies and made it easier for banks to lend.
Bailey is wary, however, of going further by taking interest rates negative.
He continued: “We have signalled that we stand ready to do more within the framework of policies we have used to date.
“And, in view of the risks we face, it is of course right that we consider what further options, such as cutting interest rates into unprecedented territory, might be available in the future. But it is also important that we consider very carefully the issues that such choices would give rise to.”
Despite support measures already taken, official figures released on Wednesday showed the Government was paying the wages of 8.4 million employees, out of a total labour force of 32 million.