(Sharecast News) – Andrew Bailey, the governor of the Bank of England, has warned that the UK faces a “very difficult” period following the resurgence of Covid-19.
In a speech to the Scottish Chambers of Commerce on Tuesday, Bailey said: “[We’re] in a very difficult period at the moment and there’s no question that it’s going to delay, probably, the trajectory.”
His “best guest” was that economic output in the last three months of 2020 was flat to slightly down, Reuters reported, and that unemployment was probably higher than the current official rate of 4.9%, at around 6.5%.
However, he added that unemployment was unlikely to peak at around 7%-8%, as previously forecast by the BoE, because of the extension of the job protection scheme.
Bailey’s comments echoed those made by the chancellor Rishi Sunak on Monday, when he warned the economy was likely to get worse before it gets better.
Bailey struck a cautious tone on negative interest rates, however. With the cost of borrowing currently at 0.1%, the BoE is carrying out a feasibility review of introducing negative rates. Some members of the rate-setting Monetary Policy Committee are open to the concept, with Silvana Tenreyro commenting on Monday that further cuts “would continue to provide stimulus”.
But Bailey argued that negative rates could hit banks’ efforts to earn a rate of return, which in turn could affect lending to companies. “In simple economics and maths terms, there is nothing to stop it all. However, there are a lot of issues with it,” he said.