The new Bank of England governor Andrew Bailey has warned that the UK is facing an ‘economy emergency’ and the worst is yet to come. Speaking to Sky News, Bailey said the UK economy needs to brace itself for a ‘very big downturn’. ‘Everything’s on the table that is reasonable,’ he said, referring to the policy tool kit at the BoE’s disposal to help manage any economic crisis in the coming weeks and months.
The governor’s warning comes a day after Chancellor Rishi Sunak’s unprecedented £350bn coronavirus stimulus and hours after the pound plummeted below $1.20 – its lowest level against the US dollar since 1985. Investors are abandoning the pound and flocking to the dollar as they prepare for waves of economic hits across the world.
While the Chancellor’s colossal giveaway included billions more in promises and pledges than businesses were expecting, he has to compete with the $1 trillion stimulus package launched in the United States
While the Chancellor’s colossal giveaway included billions more in promises and pledges than businesses were expecting, he has to compete with the £850bn ($1 trillion) stimulus package launched in the United States, which (temporarily, at least) gave the stock market reason to rally. But neither country is viewed as any kind of safe-haven by investors, who are shirking traditionally safe assets like government bonds, as they weigh up the relative safety of a government lender with the immense amount of debt both governments will rack up to deal with Covid-19, which will inevitably have to be paid back.
Speaking to ITV, Bailey said the ‘best case scenario’ is a ‘sharp and quite short-lived downturn’. But he emphasised that current levels of uncertainty means such a scenario should not be assumed or taken for granted. And while he refused to rule out certain radical measures – such as dropping interest rates to zero or going on a QE-spree like the banks did during the 2008 crash – he also emphasised to Sky News that he was not committing to any specific plan of action just yet.
But the governor’s comments today should leave us in no doubt that the Bank is preparing measures for an economy not just on the downturn, but potentially on life support. It seems the Government’s ‘whatever is necessary’ motto translates to the Bank of England as well.
Comments