In Brief

Explained: Bank of England predicts V-shaped economic recovery

Britain rebounding ‘sooner and faster’ than expected - but unemployment poses threat

The UK economy is on track for a faster recovery from the coronavirus crisis than previous predictions suggested, the Bank of England’s chief economist has said.

“Issuing an upbeat assessment”, Andy Haldane said there were signs of a V-shaped economic recovery - when “growth rapidly snaps back from a steep downturn in activity”, says The Guardian

Data on payments, traffic flow, energy use and business surveys suggested that “the recovery has come somewhat sooner, and has been materially faster” than was forecast in May, Haldane said during a Bank webinar on Tuesday.

“Policymakers and economists have grown increasingly gloomy in the past few months”, warning of “a slow U-shaped recovery, a ‘W’ caused by a second rise in cases, or even an ‘L’, where the recession is prolonged”, The Times reports.

But Haldane said that while it was “early days”, his “reading of the evidence is so far, so V”. 

“Both the UK and the global economies are already well into the recovery phase,” he continued. “The UK’s recovery is more than two months old.”

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However, the BoE expert “emphasised that the economy was still facing an unprecedented collapse and that a steep rise in unemployment posed a threat to a swift rebound”, says the newspaper.

Either consumer spending would ease unemployment or unemployment would cut household spending, Haldane added.

As the BBC notes, both scenarios  “create virtuous or vicious cycles”, but Haldane “said that he could not tell which one would prevail” as yet.

The economy is currently “benefiting from robust strength in consumer spending”, boosted by workers working from home or receiving the government’s furlough payments, the broadcaster adds.

But Haldane said that “as the furlough scheme tapers from August”, there would be “a risk this greater number of furloughed workers are not hired back by employers, adding to the unemployment pool”.

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