ADVERTISEMENT

BOE’s Haskel Sees Activity Returning Faster Than Expected

BOE’s Haskel Sees Activity Returning Faster Than Expected

The U.K. economy is seeing a “glimmer of hope” with activity returning faster than anticipated, according to Bank of England policy maker Jonathan Haskel.

Employment remains a risk, with much uncertainty around the number of furloughed workers that will be able to return to jobs, he added. If the U.K. were to experience a second wave of the virus, policy makers would respond, he added.

BOE’s Haskel Sees Activity Returning Faster Than Expected

“Retail sales and spending more broadly appear to be recovering from their April lows, and we now expect the second quarter as a whole will not be quite as negative as expected,” Haskel said during a webinar Wednesday. “The current stance of monetary policy is appropriate but, on balance, risks are to the downside.”

His comments echo those of BOE Chief Economist Andy Haldane on Tuesday, who said that the economy is experiencing a stronger recovery than anticipated from the coronavirus crisis.

Activity in the housing market is also showing some signs of returning, Haskel said. The assessment seems at odds with data Wednesday that showed house prices posted their first annual decline since 2012 and firms reported a record slump in sales.

Haskel noted the severity of the downturn, saying it’s the biggest in three centuries and that about a third of the workforce is being supported by the government. There’s no question it’s “big bananas,” he said.

As the economy gradually reopens, the risk of a second wave of infections was underscored Wednesday by the Institute for Fiscal Studies, which warned the budget deficit could top 20% of GDP – double its peak after the financial crisis. Crucially, Britain would still be borrowing 7%, or 170 billion pounds ($210 billion), in 2024-25. That’s 100 billion pounds more than the Office for Budget Responsibility forecast before the virus struck.

The scenario was outlined by IFS Deputy Director Carl Emmerson in a joint webinar with the National Institute of Economic and Social Research.

Garry Young of Niesr warned that unemployment could hit 10% by the end of the year -- the highest since the early 1990s – unless government wage subsidies that are due to end in October are continued in some form. The sectors hardest hit by the pandemic are also big employers, with the accommodation and food sectors accounting for 3% of GDP and 7% of jobs, he said.

“We would recommend that the scheme is extended or replaced to stop people losing their jobs and becoming distanced from the labor market,” he said.

Unlike Haldane, Haskel voted with the majority of the nine-member Monetary Policy Committee to expand asset purchases at their June meeting. He also voted for an increase in May.

Asked about the possibility of the central bank moving to negative rates, Haskel said that all policies remain under review in the pursuit of the BOE’s inflation goal. Officials have refused to rule out the prospect of taking borrowing costs negative since the crisis hit the U.K. in March, although Governor Andrew Bailey has noted the risks.

The MPC has already slashed to a record low 0.1%, rebooted quantitative easing and introduced new lending and liquidity measures. The committee still has policy space should it need to do more, Haskel said.

©2020 Bloomberg L.P.