LONDON — The Bank of England warned Thursday that the British economy could suffer its deepest annual contraction in more than three centuries as a result of the coronavirus pandemic, before roaring back next year.
In what it describes as a “plausible” scenario, the bank said the British economy will be 30% smaller at the end of the first half of the year than it was at the start of it, with the second quarter seeing a 25% slump alone following a 3% decline in the first.
Unemployment is projected to more than double to around 9%, but that figure does not include the 6 million workers who have been retained by firms as part of a scheme that sees the government pay up to 80% of salaries. Many of those people furloughed may end up losing their jobs if the economy fails to recover as anticipated or the government starts withdrawing its support too soon.
Over the longer term, the bank thinks the British economy could revive quickly if the pandemic comes under control globally. Under this scenario, it estimates that the economy could grow by by 15% next year, which would be the biggest annual increase since 1704. In fact, the bank expects the economy to be more or less back to where it was by the end of 2021, with the financial sector helping the corporate sector get through the strain — in contrast to the aftermath of the financial crisis, when many banks had collapsed.