UK facing ‘unprecedented economic uncertainty’

Bank of England (BoE) boss Andrew Bailey has said it is best to act aggressively, rather than cautiously, in the face of uncertainty.

Britain’s economy shrank by 20% in the three months to June as it battled with the coronavirus pandemic, the biggest fall of any large advanced economy.

Mr Bailey warned that there is significant risk of economic growth continuing to be lower than expected.

His remarks come as tighter coronavirus restrictions are imposed across the UK.

The governor told an online event on Sunday that he expected output at the end of the third quarter to be 10% lower than the end of 2019.

“We’re operating at an unprecedented level of economic uncertainty,” he said during the video conference for central banks, which was hosted by the Group of Thirty, a panel of economic policymakers and senior bankers.

“Of course, that is heightened now by the return of Covid… the risks remain very heavily skewed towards the downside.”

While Mr Bailey said that it was best to act aggressively in the face of uncertainty, he also touched on the ongoing debate over setting negative interest rates, which would bring the cost of borrowing below zero.

“Our assessment of negative interest rates, from the experience elsewhere, is that they probably appear to work better in a more wholesale financial market context, and probably better in a nascent economic upturn,” he said.

If interest rates are negative, the BoE charges for any deposits it holds on behalf of the banks. That encourages banks to lend the money to business rather than deposit it.

But with interest rates already low, it is not clear how much negative rates would help spur new activity.


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