First half likely to be 'very ugly', warns BoE chief economist

The Bank of England’s chief economist Andy Haldane believes Covid-19 has already caused the UK’s economy to shrink, with a further, sharper contraction likely as the first half continues.

In an interview with the Institute for Government think tank, which was released on Tuesday, Haldane said he thought the first quarter would record a “modest contraction”, while the second quarter would “likely bring a very much sharper contraction, seen across the world”.

The first half of 2020 would, he added, be “very ugly”.

The UK economy slowed significantly in March as the coronavirus pandemic took hold and the government introduced stringent lockdown measures, which shut businesses and kept people at home.

Hopes are now focused on a what form the recovery will take when the UK emerges from lockdown. But Haldane remained uncommitted: “There will certainly be some recovery, there will certainly be a bounce. Will it bounce back immediately? That is an open question.

“Even after those policies are relaxed, there is certainly a chance that people might be reluctant themselves to want to spend too vigorously, or to go out and socialise too much.”

In response to Haldane’s comments, Howard Archer, chief economic advisor to the EY Item Club, tweeted: “We estimate UK GDP contracted 1.3% quarter-on-quarter in the first quarter due to March weakness. GDP was up 0.1% on a 3-month/3-month basis in February. Coronavirus probably caused UK GDP to fall in the first quarter.”

Haldane also said the central bank was not directly financing the state as part of efforts to stimulate the UK economy.

Pointing to existing institutional safeguards against such actions, he said: “That gives me lots of confidence, and it should give the gilts market confidence, that this isn’t monetary financing. This is not helicopter drops, this is simply fiscal and monetary policy acting in tandem to tackle what is a whopper of a crisis.”