Kate Andrews Kate Andrews

Are the Bank of England’s forecasts too optimistic?

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The Bank of England offers a mixed bag of forecasts today. It now expects Britain’s economic downturn to be less extreme than feared, while also predicting a recovery will take longer than originally thought. The Bank now expects the economy to contract 9.5 per cent in 2020, substantially less than the 14 per cent drop it predicted at the height of the national lockdown. But it joined the Office for National Statistics in revising its optimism for a sharp V-shaped recovery downward, expecting nine per cent growth in 2021, with GDP not returning to pre-Covid-19 levels for another eighteen months.

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The Bank’s forecast remains one of the most optimistic, still showing the resemblance of a V-shaped recovery. But are these scenarios accurate reflection of what’s to come? 

Crucially, today’s forecasts include two major assumptions: that there is not a second wave of the virus and that the UK exits the European Union in a way that avoids major disruption. Neither of these scenarios is remotely guaranteed. 

While it is not yet clear if Europe is really experiencing a second spike of the virus (or the lingering effects of the first wave) governments are treating a rise in Covid-19 cases as the former and reintroducing rules and restrictions for local areas to reflect these concerns. No. 10 is adamant the UK will not go into a second national lockdown, yet its local shutdowns so far are encompassing entire cities in England and Scotland, having major effects on economic rehabilitation in those areas. 

What’s more, there is no guarantee that the UK and the EU will end up with a Brexit deal. As James Forsyth explained in The Spectator: ‘The Covid-19 crisis has served only to stiffen No. 10’s resolve: coronavirus has collapsed world trade and travel, dwarfing any changes Brexit might bring.

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