Sun, May 19, 2024

British Economy Could Shrink by 14% in 2020

The British economy in the first quarter

The state of the British economy was far from being ideal, even before the coronavirus pandemic. However, the U.K. economy is moving towards its worst crash in more than 300 years, more precisely since 1706. This information comes from the Bank of England.

According to a new forecast from the Bank of England, the British economy could shrink by 14% this year. As a result, that would be the biggest annual contraction in several centuries.

However, the central bank is ready to take measures to support the economy. Nevertheless, the governor of the Bank of England Andrew Bailey did not announce any new stimulus measures.

Based on the report, prepared by the central bank, gross domestic product (GDP) contracted by 3% in the first quarter of 2020. Nonetheless, this is not the end of the story as the bank expects the GDP to fall by as much as 25% in the second quarter. Consequently, the British economy would be 30% smaller than it was at the end of 2019. Moreover, the unemployment rate is expected to reach 9%.

British economy in the long run

Bank of England and economy

Hopefully, the Bank of England expects a swift economic recovery in 2021. However, the central bank warned that its forecast depends on a number of factors. This forecast assumes a gradual easing of social distancing measures as well as, on monetary and fiscal stimulus. Furthermore, this forecast also depends on how the governments, households, and businesses will respond to this challenge.

Nevertheless, economists at Commerzbank expect a slower recovery. Importantly, as can be seen from the historic examples, there will be a more permanent loss of output and more persistent unemployment.

Interestingly, some European countries took several steps to reopen their economies as the region is struggling to cope with the worst economic shock since the Great Depression.

Based on the information provided by the European Commission, the EU economy will shrink by a record of 7.5% in 2020.

The Bank of England took some steps to deal with economic shock caused by the lockdown as well as lost production. The central reduced interest rates to a record low in March. Moreover, it launched a $248 billion bond-buying program.

Moreover, the U.K. government launched a rescue package that includes tax relief for businesses worth $37 billion. Also, interest-free loans for up to 12 months. Furthermore, the government is paying salaries for more than 6 million workers. The initial period is three months. However, the government may have to spend even more money to support the British economy.

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