Bank of England interest rate-setter Michael Saunders said today that it was “quite likely” that more stimulus will be needed for Britain’s Covid-hit economy in a downbeat speech on the outlook.
“I consider it quite likely that additional monetary easing will be appropriate in order to achieve a sustained return of inflation to the two per cent target,” Saunders said.
Growth was likely to disappoint relative to the Bank’s forecasts published last month, Saunders said.
He said an ongoing recovery was the result of a “benign window” – the combination of huge government spending and the relaxation of lockdown measures.
“This window may now be closing,” Saunders said, adding that a downside scenario for the economy would be “very costly”.
Saunders said the withdrawal of the government’s furlough scheme at the end of October was likely to lead to a spike in unemployment.
“Unemployment is likely to rise significantly in coming quarters as the furlough scheme winds down and workforce participation recovers,” he said.
“The scale of the projected rise in unemployment (about 3½ percentage points) is similar to that seen in 2008-11, but it occurs much faster. Indeed, it would be, by some distance, the sharpest rise in unemployment for at least 50 years.
“While there are uncertainties around that forecast, my view is that the picture of a sharp rise in unemployment is – sadly – highly plausible,” he added.
On Wednesday, the Bank’s deputy governor Dave Ramsden and another rate setter, Gertjan Vlieghe, also warned the economy could suffer more damage from the coronavirus crisis than spelt out by the central bank last month.
Many economists expect the Bank to announce a ramping-up of its bond-buying programme in November.