Former Bank of England governor Sir Mervyn King has said the impact of the coronavirus outbreak will be much worse than the 2008 financial crisis.
King, who led the Bank during the crisis, also said the country should be prepared for much higher borrowing as a result of economic policies to limit the fallout from the virus.
The Bank of England under new governor Andrew Bailey – who only started last week – has twice slashed interest rates and launched a £200bn money-printing programme in an effort to calm financial markets and support the economy. The main rate is now 0.1 per cent, a record low.
Chancellor Rishi Sunak has unveiled more than £350bn of support for the economy, including a wide-ranging business loan scheme and a plan to pay some workers’ wages directly.
King today told the BBC: “In the end this will have to be paid for by much higher borrowing. We shouldn’t worry about the scale of that at this stage.”
He said he thought the Covid-19 pandemic is “much more serious and much more difficult to cope with” than the 2008 crisis.
“In the financial crisis we were dealing with a relatively small number of financial institutions. We knew broadly what we had to do. In this case the situation is extremely uncertain.”
King was criticised for responding slowly to collapse of lender Northern Rock and the onset of the financial crisis. The BoE under him later innovated to prop up the economy, however.
The former governor said he thought economic growth would rebound faster than after the financial crisis, however.
“I don’t think words like recession or depression are helpful in this context. In order to deal with a health crisis, the government is deliberately pressing down on economic activity,” he said. “At some point there will be a rebound.”