The Bank of England Governor Andrew Bailey said there is a significant risk of further disappointments to UK economic growth, and that the country faced unprecedented uncertainty as coronavirus cases began to climb again.
Reuters has reported that Britain’s economy shrank by 20% in the three months to June, the biggest drop of any large advanced economy, and Bailey reiterated that he expected output at the end of the third quarter was 10% below its level at the end of 2019.
“Ten percent is still a huge gap, let’s be clear on that,” Bailey told an online seminar for central bank governors hosted by the Group of Thirty, a panel of economic policymakers and senior bankers on Sunday.
“We’re operating at an unprecedented level of economic uncertainty. Of course, that is heightened now by the return of COVID.... The risks remain very heavily skewed towards the downside,” he added.
Market implications
The BoE is expected to announce further bond purchases on November the 5th.
This will come on top of the 310 billion pounds ($400 billion) of asset purchases already underway since the start of the pandemic.
Meanwhile, the idea that the BoE will have no choice but to move to cut interest rates to negative at some point is a weight on the pound.
“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.
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