Economic downturn not as severe as originally feared, says Bank of England

The Bank of England - recovery will take longer than thought.

THE UK economy will not be as badly hit by Covid-19 as was originally feared, but the recovery will take longer, the Bank of England has said.

The Bank says it expects the economy to shrink by 9.5% this year which would be the biggest annual decline in 100 years, but it is not as steep as the Bank's initial estimate of a 14% contraction.

Holding interest rates at 0.1%, the Bank said unemployment was likely to rise "materially", but the Bank said the recovery had been "earlier and more rapid" than it had expected in May, reflecting a faster easing of lockdown restrictions.

Governor Andrew Bailey added: "We have had a strong recovery in the last few months. The pace puts the economy ahead of where we thought it would be in May."

The Bank said spending on clothing and household furnishings was now back to pre-Covid levels, while consumers have carried on spending more on food and energy bills than before the lockdown.

However, Mr Bailey cautioned against reading too much into recent data: "We don't think the recent past is necessarily a good guide to the immediate future," he said.

The Bank said leisure spending and business investment remained subdued, which would weigh on the recovery.

The Bank said the UK still faced its sharpest recession on record, with the outlook for growth now "unusually uncertain".

It expects the UK economy to grow by 9% in 2021, and 3.5% in 2022, with the economy forecast to get back to its pre-Covid size at the end of 2021.