The Bank of England. Picture: REUTERS
The Bank of England. Picture: REUTERS

London — The UK is experiencing a stronger recovery than Bank of England (BOE) policymakers were expecting, according to the central bank’s chief economist Andy Haldane.

“It is early days, but my reading of the evidence is so far, so V,” Haldane said in a speech delivered online on Tuesday, reports said.

Officials also need to be wary of the limits of monetary policy in combating the downturn, he said in the webinar. Haldane was the only member of the bank’s monetary policy committee to vote against an expansion of its bond-buying programme earlier in June.

Growth probably fell by 20% compared with its pre-Covid peak in the second quarter, 7 points less than in the BOE’s last official scenario in May, Haldane said. Consumer spending appears to be picking up, and if higher levels continue, output could be put onto a different path than the bank’s previous estimates.

“Risks to the economy remain considerable and two-sided,” he said. “Though these risks are in my view slightly more evenly balanced than in May, they remain skewed to the downside.”

The UK contracted more than projected in the first quarter as consumers saved more and spent less, the statistics office reported earlier Tuesday.

The most prominent downside risk is the labour market, Haldane said. As the government’s furlough programme tapers in August, there’s a risk that workers are not hired back by employers, which could create a negative feedback loop and result in lower spending. Still, if companies are willing to take back furloughed workers, that would raise household incomes, confidence and spending, he said.

Since the May forecasting round, “positive news on demand has, in my opinion, more than counterbalanced the rise in downside risks to employment”, he said.

The first line of defence against the crisis is fiscal policy, and Haldane said there’s little monetary policy can do to fix sectoral shifts in the economy or structurally high unemployment.

“Before the Covid crisis, I expressed concerns about the growing ‘dependency culture’ around monetary policy,” he said. Noting that central banks shouldn’t be over-burdened, “recent events have done nothing to allay those concerns.”

Still, Haldane also said he remains open-minded on further policy easing should the economy require it. Asked about the possibility of negative interest rates, he said that the central bank is reviewing the policy, an exercise that will stretch into the second half of the year.

Quantitative easing (QE) was the bank’s marginal policy tool in June and is likely to be going forward as well, he said.

With the prospect of tightening still a long way off, the MPC hasn’t discussed whether it would raise interest rates or sell bonds first, he said. Governor Andrew Bailey June 22 that said he would  prefer to rein in QE as a first step.