BoE's Bailey warns of downside risks to UK

The Governor of the Bank of England said risks to Britain's economy were "very much on the downside" and that the BoE was ready to take aggressive action to limit the impact of a resurgence in coronavirus cases.

“There is an unprecedented level of uncertainty at the moment. And the risks, I’m afraid - certainly as we see them - are very much on the downside,” Bailey told an EU banking conference, according to Reuters.

The UK government is struggling to contain a new surge in Covid-19 infections with local lockdowns, prompting fears of a wider shutdown of the economy. Economists also expect a wave of unemployment after the government withdraws most of its support for jobs at the end of October and Brexit trade talks are creating further concerns.

The BoE has already cut interest rates to a record low of 0.1% and expanded its bond-buying programme to support the economy. Many economists expect the monetary policy committee to announce a further increase in bond-buying, known as quantitative easing, when it next meets in November.

“We are by no means out of firepower ... in terms of our policy tools, and we will use that firepower as appropriate, properly and strongly in response to second and third waves, where we think it is necessary,” Bailey said.

Howard Archer, chief economic adviser to the EY Item Club, said Bailey's remarks were "pretty dovish". The pound was down 0.09% to $1.2907 and 0.02% to €1.0980 at 12:13 BST.

Covid-19 has combined with lack of progress on a post-Brexit trade deal to put the UK economy under extreme pressure. Bailey said the transition to life outside the EU would have been easier without Covid-19 and that a trade agreement was needed.

“Nobody benefits from protectionism in my view,” he said.

Earlier on Thursday Bailey said in an interview he thought the EU and UK should be able to reach a trade deal and that the new round of Covid-19 infections probably would not be as economically damaging as the last.