People’s fear of catching coronavirus is likely to stop them from going out to spend normally and “drag on the economy,” a Bank of England policymaker has said.
Jonathan Haskel, a member of the Bank’s monetary policy committee (MPC), said the “path of recovery” therefore depends on public and private health measures bringing coronavirus under control.
He added that the UK economy’s recovery also “depends on the fear, or realisation, of unemployment”. He spoke at an online event organised by Imperial College London, where he is a professor.
A BoE official since 2018, Haskel has consistently been one of the most “dovish” MPC members, voting for loose monetary policy such as lower interest rates and more quantitative easing.
“In recent months I have voted for more accommodative monetary policy,” he said. “I am concerned about the economy ‘getting stuck’ and recovering only slowly and undershooting the inflation target.”
Last week, Haskel’s MPC colleague Silvana Tenreyro also flagged the dangers of social distancing and unemployment. She said the UK economy would likely see an “incomplete” V-shaped recovery.
Weak demand could weigh on UK economy
Britain has gradually eased the coronavirus lockdown over the last two months. Shops, restaurants and cafes were allowed to open at the start of this month. Gyms and pools will soon reopen too.
But the number of people venturing out to spend their money is still well below normal, according to footfall data.
The number of Brits heading to retail destinations rose 4.5 per cent last week, according to data provider Springboard. That was well below the 10.6 per cent jump recorded the previous week when pubs reopened.
Haskel said: “When the economy re-opens, customers might still fear infection and therefore stay away from consumption that has a social element to it.”
“It seems likely that such demand weakness will therefore drag on the economy and hold back the recovery.”
He said the UK economy’s recovery therefore depends largely on government and private measures to stop the virus. He cited a coronavirus track and trace scheme and protective screens in shops as two examples.
Haskel also said that people being “worried about unemployment” would “hold back the economy”.
Economists worry that there will be a wave of unemployment when the government job retention scheme is wound down in the autumn.