A former Bank of England policymaker has said a nationwide “circuit-breaker” could cause less damage to the UK economy than prolonged local coronavirus lockdowns.
Martin Weale, who served a six-year stint on the Monetary Policy Committee (MPC) in the wake of the financial crisis, told the PA news agency a short national lockdown may limit the hit to the economy.
He warned the current path of restrictions would see the recovery pull back sharply in the fourth quarter – with another contraction “certainly” possible by the end of the year if more areas are placed in lockdown.
His comments come after South Yorkshire became the latest region in England to face the most stringent restrictions, with 7.3 million people in England – 13% of the population – now living under tier three rules.
Wales has already introduced a circuit-breaker across the country.
Mr Weale said: “It’s possible that a circuit-breaker would reduce the necessary number of restrictions after it is over.
“If the transmission of the virus was broken again, then we would be able to have more (economic) activity afterwards,” he said.
He said while restrictions are set to deal a blow to the recovery, it is unlikely the economy will suffer a contraction on the scale seen earlier this year, when the lockdown sent output crashing by a record 19.8% between April and June.
He said: “I’d be surprised if there was a fall on a similar magnitude as we saw in the second quarter.
“The Government is trying hard to keep schools open and that creates extra economic activity.”
He said many essential firms would also be able to carry on trading uninterrupted through a second wave, having now put in place social distancing measures.
Mr Weale – now professor of economics at King’s College London – also lent his support to the case for negative rates, arguing they could provide a vital lending lifeline for UK firms amid the pandemic.
He said while negative rates may not ultimately do much to boost household spending, they could encourage lenders to keep finance flowing to crisis-struck businesses.
This is because a negative base rate would see the Bank of England charge lenders money to hold their cash.
He adds to a growing voice of support for negative rates among current policymakers as they look to boost their firepower amid the pandemic.
But he also issued a stark warning to the Government to get its ballooning borrowing in order as soon as the UK is out of crisis mode, or risk still being heavily in debt by the time the next pandemic arrives.
He said Chancellor Rishi Sunak should outline plans to cut public debt once a vaccine is on its way.
“If pandemics tend to become more frequent than every 100 years and if we let the national debt go up… and don’t get it down in between, then it’s hard to see we won’t have a problem,” he said.