BoE's Bailey warns on premature easing of lockdown

The governor of the Bank of England has warned that lifting the Covid-19 lockdown too early could cause a severe lack of public confidence and damage the economy.

Andrew Bailey said reopening businesses and then closing them because of a second wave of infection would unnerve people and undermine sentiment.

"If we had a lifting and then [lockdown] came back again, I think that would damage people’s confidence very severely," Bailey told the Daily Mail. ‘If we have a false start... that would have potentially quite difficult effects I think."

The governor, who took over in March as the crisis was erupting, made his comments amid a reported split in the UK cabinet over the length of the lockdown. With the number of deaths stabilising the government is turning its attention to how to escape the lockdown.

Bailey took issue with one of his predecessors, Mervyn King, who has argued young people might rebel if restrictions designed mainly to protect older people go on too long. Bailey said any relaxing of restrictions should make sure people were safe at workplaces and travelling to work.

"I would apply slight caution to the Mervyn King line, which I have read and seen when he has been on television," he told the Mail. "As an employer – and we have this at the Bank of England – you have to be able to answer the questions for your staff: is it safe to come to work?"

Prime Minister Boris Johnson and Matt Hancock, the health secretary, are said to be cautious about relaxing restrictions but other ministers, including Chancellor Rishi Sunak, want businesses to start reopening sooner. Bailey's comments see him siding with the cabinet's so-called doves who argue a premature lifting could cause a fresh wave of infections.

Bailey also said not enough money had got through to struggling businesses under the government's emergency loan scheme, which is channelled through banks. Other countries such as Germany and Switzerland have been more successful in providing support quickly.

"It is clearly not satisfactory and [the system] clearly needs to be un-gummed," he said. "I gee up the banks regularly. The chancellor and I are both extremely keen that credit flows to firms."

Sunak has said he is not convinced that increasing government guarantees for loans to 100% from 80% would make much difference.