The Bank of England is the UK’s central bank and is meant to be independent of political allegiance and direction. However, its most recent announcement from its latest committee meeting may make some question that, as some of the released committee papers appeared to be full of political soundbites. In fact, some may argue it was downright propaganda.
Here, we look at the latest Bank of England announcements and question whether they statements can really be true.
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What has the Bank of England done?
The Bank of England released its Monetary Policy Summary late last week and minutes from its Monetary Policy Committee. The extensive document outlines the direction the Bank of England expects the UK economy to take. It also addresses how the Bank will try to temper any fall out from the impact Covid-19 has had on the UK’s GDP.
What does the Bank of England think about the UK economy?
In short, the Bank of England maintains the first quarter of 2021 will see a decline in productivity due to the current lockdown. However, the committee fully expects that the economy will bounce back in Spring. The minutes state that a ‘rebound’ is to be expected. The Spring is when lockdown restrictions are anticipated to be loosened and consumers can therefore start buying again as they once did.
There is a fair amount of reason for the Bank to believe that consumer behaviour will begin again. Plus it is understandable that consumer confidence will return to more normal levels in Spring. That’s because the UK has rolled out a vaccination program that is extensive and fast paced.
So while the term ‘rebound’ is bandied around a lot by commentators, it is not unreasonable to believe that our economy will start growing again.
As many of us have heard, all priority groups are expected to be vaccinated within the next two weeks. Then we can expect a large amount of the population to be vaccinated by April.
Importantly, in that time, schools will be expected to return in March. Schools reopening is an important factor to economic growth. Given that homeschooling children is yet another drag on productivity, freeing up adults' time to focus on work again is key.
What else could happen?
However, the phrase ‘recover rapidly’ along with rebound, may seem a little too optimistic for many. The true impact of the mass vaccination program is yet to be felt. Plus, don’t forget that it is fully reliant on supplies of the vaccine being ample enough to help inoculate large swathes of the population. And, there is still the risk that the vaccine does not dampen transmission rates enough. If it doesn't, we simply won't be able to get rid of all restrictions in the Spring. In fact, these two factors alone may leave large parts of the economy still shut - with the likes of hospitality continuing to take the brunt. To be fair to the minute makers of the committee, the Bank of England does admit that growth - or the rate of growth - does look ‘unusually uncertain’.
Plus there are other factors at play other than just the vaccine. At present, the furlough scheme is keeping unemployment numbers lower than they otherwise would be. However, it is already higher than it has been in the last five years. At present, it stands at around 5% and looks set to rise to nearer 8% when Rishi Sunak announces the end of furlough. Unemployment is one of the major detractors when it comes to economic growth. High unemployment limits consumer confidence and purchasing power when it gets too high.
In short, despite the Bank of England’s protestation as to otherwise, the UK economy could falter. The Bank will do everything in its power to help encourage an upward trajectory. However, the Coronavirus restrictions have been more than just a strong headwind. In fact, the setback to the economy has been so great that the Bank’s statement warns banks to get ready for the possibility of negative interest rates.
Will the UK economy rebound?
It is, of course, possible for the UK economy to rebound like the Bank so optimistically says it will. However, it does appear that so many stars have to align for that to occur. The vaccination program not only has to continue at a phenomenal pace, but the vaccine itself also has to be effective.
And not just in the UK. We can’t forget that we live in a global economy, and the majority of our trading partners have not been as quick on the uptake for rolling out vaccines as us. Additionally, we cannot forget the possibility that variants will have a huge impact on infection rates and numbers.
Ultimately, the Coronavirus has proven a difficult beast to tame. We have largely been living with some forms of restrictions now for almost a year. That looks set to continue for a few months yet, when only a slow easing of restrictions will occur. Despite having some of the most dynamic of thinkers on the committee, a strong rebound in the economy may be slower than many would want. After a year of huge unknowns and constant changes, it seems too good to be true for the economy to start growing at a fast rate again.
Plus, let's not forget, even if it does rebound, it is doing so from an unthinkable depth.