LONDON (Reuters) – Britain may be in the grip of its worst economic slump in centuries, a Bank of England official warned, as the coronavirus lockdown pounded businesses this month with more force than even the most pessimistic forecasters had feared.
Interest-rate setter Jan Vlieghe said on Thursday the economy should recover its pre-coronavirus growth pattern once the pandemic is over, but it could take time.
Earlier, surveys showed a historic contraction in the economy is all but guaranteed as the government grapples with its biggest public health crisis in more than 100 years. Over 17,000 Britons have died from the novel coronavirus so far.
The government will need to issue 180 billion pounds of debt in the next three months alone to pay for the unprecedented measures launched to stem the collapse of the economy, the Treasury said on Thursday.
“Based on the early indicators, and based on the experience in other countries that were hit somewhat earlier than the UK, it seems that we are experiencing an economic contraction that is faster and deeper than anything we have seen in the past century, or possibly several centuries,” Vlieghe said in a speech delivered online.
“The economy’s potential is severely disrupted at the moment, but once the pandemic is over, and other things equal, in principle it should return approximately to the pre-virus trajectory.”
But he also said a slow, U-shaped recovery was more likely than a quick, V-shaped rebound.
The monthly IHS Markit/CIPS Flash UK Composite Purchasing Managers’ Index (PMI) showed the extent of the damage.
It fell to record low of 12.9 from 36.0 in March – not even close to the weakest forecast in a Reuters poll of economists, a reading of 31.4. The picture was similar in France and Germany.
“Like those across Europe, these are shocking figures,” said ING economist James Smith, who predicts it will be 2022 at the earliest before Britain’s economy recovers to its pre-outbreak size.
Another survey showed manufacturers were more pessimistic about the outlook than at any time since records began in the 1950s.
(GRAPHIC: UK services PMI falls to new record low of 12.3 – here)
A Reuters poll of economists pointed to a roughly 13% contraction in the current quarter, the largest since records began after World War Two.
Data company IHS Markit said its figures raised questions about the cost of the lockdown and how long it will last.
“Seeing the numbers in cold hard print and witnessing the depths of the reported falls in output is sobering,” said Investec economist Victoria Clarke.