Bank of England’s predictions for our recovery look worryingly optimistic

The Bank’s predictions of a strong rebound after the crisis depend on a number of deeply uncertain suppositions

When the Bank of England is warning of the biggest hit to the economy in 300 years, it seems strange to call it optimistic. Unemployment of 9pc and a 25pc output slump in the current quarter, detailed in the latest Monetary Policy Report, hardly seem like material for the sunny-side-up brigade.

But the Bank’s “illustrative scenario” – which due to the uncertainty of the Covid-19 outbreak is necessarily more vague than its usual forecasts – has the UK economy bounding rapidly back in 2021 to reclaim its lost ground, when some independent forecasts say that could take as long as five years.

Yes, the economy may shrink 14pc this year, but, according to the Bank, it will recover 15pc next year and that ugly-looking spike in unemployment will be back down to 4pc in 2022.

Why so cheery? Governor Andrew Bailey suggests that the main factor is the massive scale of the Government and monetary response, driven by the furlough scheme paying the wages of millions of workers.

Bailey, who must have had the busiest two months of any new central banker anywhere, says the evidence so far suggests “it will smooth companies and the economy into action”.

Source Article