Bank of England Governor Andrew Bailey said he did not think the economy was undergoing a sharp “V-shaped recovery, because of headwinds from a second wave of COVID and underlying public caution about spending and socializing after the pandemic.
“A ‘V’ is really not the way I look at it in terms of what we face going ahead,” Bailey told the House of Lords’ Economic Affairs Committee. “The recovery will take time.”
Economic output at the end of September was probably 9-10% below its level a year earlier, he added, compared with a 22% shortfall at the end of June.
Bailey said there were different views about the strength of the recovery on the central bank’s Monetary Policy Committee, and that the BoE would produce fresh forecasts next month.
The BoE’s chief economist, Andy Haldane, warned against “Chicken Licken” -style gloom about the health of the economy last month, though not long after that official data showed the recovery slowed sharply in August.
Bailey, sticking closely to his recent policy comments, said he saw downside risks to the economy from the sharp rise in COVID cases in recent weeks.
A second wave of cases also risked increasing long-term economic damage and joblessness, as some businesses would not survive a prolonged downturn while others would find that consumers’ tastes had changed as a result of lockdown.
“As COVID returns, and if the prospect is that it will go on for longer … the prospect of scarring would increase,” he said.
Bailey also reiterated the central bank’s non-committal stance on negative interest rates, following a letter to banks on Monday asking them to state whether they were technically capable of implementing sub-zero rates.
“Only when we get through these questions (on practicality) will we be in a position to say if it is a tool we would use, we are not there at the moment,” he said.
In the daily charts of GBP/USD, the pair gained slightly early Wednesday morning in Sydney Session.
The GBP/USD pair inched up 0.01% to 1.2935. The pound extended declines as the U.K continues to battle a second wave of COVID-19 cases and re-implements measures restricting economic activity.
Further adding to the sterling’s woes are worries about the little progress made towards a Brexit deal between the U.K. and the European Union, with less than two days to go ahead of Prime Minister Boris Johnson’s self-imposed Oct. 15 deadline. The possibility that the Bank of England could introduce negative rates also dampened investor sentiment.
The pair may thread lower and reach the support level at 1.2688 in the following days or weeks.
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