British economy to recover longer than expected Financial

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However, such an intervention is not yet necessary. The UK central bank expects the economy to shrink 9% this year, compared to 14% in May. But the recovery next year is also going less fast, with 9.5%, where 15% was expected in May.

And these numbers are very optimistic, writes economist Peter Dixon of Commerzbank. “The Bank of England (BoE) is very optimistic about the short-term outlook.” For example, the bank expects consumer spending to be only 10% below the level of the beginning of this year, while it fell by as much as 30-40% at the time of the lockdown.

But the BoE, according to Dixon, barely takes into account the long-term consequences that the corona crisis has on the British. Commerzbank, for example, expects unemployment to rise sharply as soon as government programs are phased out.

Interest unaffected

In Thursday’s interest rate decision, policymakers at the central bank in London decided to leave their interest rate unchanged at 0.1% for the time being. The enormous bond buying program, amounting to no less than 745 billion British pounds, was also not changed. With this program, the Bank of England tries to support the British economy.

As the situation now looks, the UK economy will probably only be able to return to December 2019 levels at the end of next year at the earliest, the central bank predicts. In May, the Bank of England had said that the economy could return to pre-crisis levels in the course of the second half of 2021.

Brexi

The central bank is still ajar to open further stimulus measures. ING expects the interest rate meeting in November to be especially exciting. Then the BoE will release a new report on monetary policy, and hopefully there will be more clarity about what the trade relationship with the EU will look like after Brexit.

For example, the BoE assumes that there will be a trade treaty between the British and Europeans at the end of 2021, but negotiations for it are still difficult. Without a trade deal, it seems inevitable that higher import and export tariffs will start, which will harm the British economy.

The discussion about negative interest rates has not yet been settled, think ING economists Chris Turner and Antoine Bouvet. “It is of little use to the BoE to rule out lowering interest rates below 0% now,” they write in response to the interest rate decision.

Negative interest?

There is a lot of debate among central bankers whether such a negative interest is useful or harmful. In the eurozone, but also in Switzerland and Denmark, the central banks have interest rates below 0%. This does have the side effect that interest on savings accounts has evaporated. It can also lead to bubbles in the stock market, as investors are increasingly taking risks in search of returns.

Not all central bankers are therefore fond of these types of extremely low interest rates. The US Federal Reserve, the world’s leading central bank, has already said it does not want to cut interest rates below zero.

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