The UK’s economic outlook has improved slightly since May but the risk of high and persistent unemployment remains, the Bank of England’s chief economist Andy Haldane said today.
“Looking ahead, risks to the economy remain considerable and two-sided,” Haldane said in a speech delivered online. “Although these risks are in my view slightly more evenly balanced than in May, they remain skewed to the downside.”
He said that in his opinion, positive news on UK demand has “more than counterbalanced the rise in downside risks to employment”.
“Of these risks, the most important to avoid is a repeat of the high and long-duration unemployment rates of the 1980s, especially among young people,” he said.
At the Bank’s last Monetary Policy Committee meeting earlier this month, Haldane cast a lone vote against the BoE boosting its quantitative easing programme by £100bn.
In today’s speech, Haldane said: “I stand ready to adjust monetary policy, at speed, if needed to support the economy and return inflation to its target on a sustainable basis”.
However he added that “it is important to recognise the limits to what monetary policy can achieve”.
“Monetary policy can help to deliver the monetary and financial conditions necessary to support households and businesses — and is doing so.”
“But monetary policy can do relatively little to avoid problems caused by structural or sectoral shifts in the economy, such as structurally high rates of unemployment,” Haldane said.
The Bank’s chief economist said the UK and global economies were “already well into” the “recovery phase”, but said both economies were recovering “from an exceptionally low starting point” following an unprecedented drop in GDP in the first quarter.
Figures released today showed that UK GDP suffered a 2.2 per cent drop in the first quarter of 2020 – the worst fall since 1979.
In his speech today, Haldane said he thought that the UK economy is on course for a relatively quick V-shaped recovery from the pandemic.
“There is a debate about which letter of the alphabet will best describe the path of the economy, with some scepticism about the V-shaped scenario path,” he said.
“It is early days, but my reading of the evidence is so far, so V.”