London, United Kingdom—The economic crisis caused by Covid-19 will leave fewer longer term scars than previous recessions, Bank of England (BoE) governor Andrew Bailey said Monday.
“If I had to summarize the diagnosis, it’s positive but with large doses of cautionary realism,” he said.
Britain, the European country hit hardest by the pandemic, has also suffered the worst recession among developed countries.
But with a rapid vaccination campaign, the country hopes to return to normal sooner than initially expected.
Despite a year of three lockdowns, the government’s Office for Budget Responsibility (OBR) projects that the economy will return to its pre-crisis level by mid-2022, six months earlier than originally forecast.
“Some of the effects on supply directly related to restrictions on activity and voluntary social distancing are likely to be temporary, and should start to reverse as the health outlook improves,” Bailey said in Monday’s speech.
Ahead of next week’s BoE meeting, Bailey said the economy faced pressure from “both sides”, with fears that a worsening health situation could put a strain on the economy, and that a boom in activity on a rapidly improving health outlook could trigger inflation.
Fears of rising inflation have led investors to abandon bonds, pushing up rates.
The BoE is examining the possibility of adopting negative rates in an attempt to boost investment, a measure never before used in the UK and for which the bank has advised the government to prepare for.
It is also considering “tightening monetary policy if necessary” in combatting inflation, added Bailey.
