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BoE's Tenreyro sees 'incomplete V' shape for UK recovery

William Schomberg and Andy Bruce
·2-min read
FILE PHOTO: The coronavirus disease (COVID-19) spread in London
FILE PHOTO: The coronavirus disease (COVID-19) spread in London

By William Schomberg and Andy Bruce

LONDON (Reuters) - Bank of England policymaker Silvana Tenreyro said Britain's economic recovery would probably take the shape of an "incomplete V" as consumers stay wary of the coronavirus and unemployment rises.

After an initial pickup between now and the end of the year, prompted by the lifting of lockdown restrictions, the bounce-back was likely to lose momentum, Tenreyro said.

"Assuming prevalence of (COVID-19) 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.

BoE Chief Economist Andy Haldane, who voted against the central bank's decision to increase its stimulus last month, has described the shape of the recovery as "so far, so V", although he said an expected jump in unemployment posed a big risk.

Britain's gross domestic product grew by just 1.8% in May from April, when it slumped by 20% but Tenreyro said she was not putting much weight on just one month's data.

"We are already seeing indications of a sharp recovery in purchases that were restricted only because of mandated business closures," Tenreyro said in a speech during an online event organised by the London School of Economics.

"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."

On Tuesday, Britain's budget forecasters said the unemployment rate could rise as high as 13% from just under 4% in the most recent reading.

Tenreyro said downward pressure on inflation was likely to persist for some time and cited "considerable downside risks" for demand. "I remain ready to vote for further action as necessary to support the economy," she said.

Tenreyro also said it was important to see if traditional tools such as tax cuts and monetary policy can still boost demand after initial research suggested there would be less of an impact due to people opting to socially distance themselves.

Past relationships between unemployment and inflation were also likely to be disrupted, she added.

Asked about negative interest rates after her speech, Tenreyro said evidence from the euro zone and other countries had been largely positive.

The BoE's next policy decision is due to be announced on Aug. 6.

(Additional reporting by David Milliken; Writing by William Schomberg,)