Bank of England warns of worst recession in centuries

Policymaker Gertjan Vlieghe, who sits on the central bank’s interest rate setting committee, issued the gloomy warning as survey data showed UK business activity shrivelled up this month on the back of COVID-19 lockdowns at home and abroad.

“Based on the early indicators, and based on the experience in other countries that were hit (by the virus) somewhat earlier than the UK, it seems that we are experiencing an economic contraction that is faster and deeper than anything we have seen in the past century, or possibly several centuries,” said economist Vlieghe.

Britain’s nationwide lockdown was imposed on March 23 in a bid to halt the spread of the pandemic, mirroring severe restrictions to daily life introduced elsewhere.

– Devastating picture –

A new survey issued Thursday painted a devastating picture of the impact.

The manufacturing purchasing managers’ index (PMI) for services and manufacturing plunged to just 12.9 in April after 36 in March, compilers IHS Markit and the Chartered Institute of Procurement and Supply said.

The reading was far below the key 50 level which separates contraction and expansion, and represented the worst reading in the history of the survey.

“Widespread business shutdowns at home and abroad in response to the COVID-19 pandemic unsurprisingly resulted in a rapid reduction in UK private sector output during April,” Markit/CIPS said in a statement.

“The latest composite PMI signalled by far the fastest decline in business activity since comparable figures were first compiled over two decades ago.”

– ‘Dazed and confused’ –

OANDA analyst Craig Erlam told AFP that the coronavirus represents a hammer blow to the economy, despite enormous stimulus measures from the Bank of England and Prime Minister Boris Johnson’s Conservative government.

“It’s hit the economy like a blow to the back of the head; severe and unexpected, leaving the country dazed and confused,” Erlam said.

Britain’s Office for Budget Responsibility fiscal watchdog has warned that coronavirus could shrink the economy by 13 percent in 2020.

The BoE was at the forefront of economic firefighting last month, slashing interest rates to a record-low 0.1 percent and expanding its quantitative easing — under which it buys UK government and corporate bonds — to £645 billion (737 billion euros).

Finance minister Rishi Sunak had unveiled a series of multi-billion-pound stimulus packages, backing up employee wages by up to 80 percent, giving tax holidays to businesses and boosting welfare payments.

The Office for National Statistics declared Thursday that Sunak’s vast stimulus would have a “significant impact” on UK public sector finances, which have already overshot their annual target.