Yahoo Finance Economy on track for rapid V-shaped recovery, says Bank of England chief economist
The economy is on track for a short V-shaped recession following early signs that spending has jumped by more than expected, the Bank of England’s chief economist has said.
There has already been a "modest recovery" in spending and business confidence according to real-time indicators, Andy Haldane said.
Mr Haldane argued that early signs such as surveys are “coming in a shade better” than the Bank’s scenario, which already predicted a V-shaped recovery in activity where little long-term damage is done to the economy. This view was dismissed as far too optimistic by many economists, who fear severe long-term damage has already been done.
In an online talk organised by the Confederation of British Industry, Mr Haldane said: “The reason it was atypically sharp and severe on the downswing are the same reasons we would expect it to be atypically strong on the upswing, as and when we see the opening of the economy.
“It’s perhaps still a V but it's a relatively lopsided V, and the risks to that probably lie to the downside.”
Mr Haldane said the Bank is not “remotely” close to a decision on negative interest rates after a week of fierce speculation on financial markets. He confirmed that the Bank’s rate-setters are reviewing the controversial policy - in which banks would be charged for hoarding cash rather than lending it out - amid fears it could prove counterproductive.
The Bank has predicted a 25pc collapse in GDP in the second quarter of 2020 but has struck an optimistic tone on the economy’s recovery. It expects relatively low levels of economic scarring with output returning to its pre-virus peak in the second half of 2021 and unemployment back at 4pc in 2022.
Other economists have warned that deeper scarring from job losses and business failures will mean a slower recovery.
Peter Dixon, an economist at Commerzbank’ said there will be permanent harm which hits the labour market and public finances.
Output will not return to pre-recession levels until 2023, he predicted, much later than the Bank’s assumptions.
Mr Haldane did warn the economy could suffer from a “paradox of thrift” unless the Government can instill confidence in businesses and households.
The paradox of thrift is when cautious consumers and businesses increase their savings in the face of recession, inadvertently making the downturn worse by curbing demand.
