Britain’s economy is on course for a shallower recession than feared after a series of surveys showed business activity has recovered at a modest rate, the Bank of England’s chief economist said.
Andy Haldane said recent data was coming in “a shade better” than a scenario for the economy published by the central bank earlier this month, but risks remained that the recovery could be slower as companies and consumers remained cautious.
Will there be a second wave of coronavirus?
Epidemics of infectious diseases behave in different ways but the 1918 influenza pandemic that killed more than 50 million people is regarded as a key example of a pandemic that occurred in multiple waves, with the latter more severe than the first. It has been replicated – albeit more mildly – in subsequent flu pandemics.
How and why multiple-wave outbreaks occur, and how subsequent waves of infection can be prevented, has become a staple of epidemiological modelling studies and pandemic preparation, which have looked at everything from social behaviour and health policy to vaccination and the buildup of community immunity, also known as herd immunity.
This is being watched very carefully. Without a vaccine, and with no widespread immunity to the new disease, one alarm is being sounded by the experience of Singapore, which has seen a sudden resurgence in infections despite being lauded for its early handling of the outbreak.
Although Singapore instituted a strong contact tracing system for its general population, the disease re-emerged in cramped dormitory accommodation used by thousands of foreign workers with inadequate hygiene facilities and shared canteens.
Singapore’s experience, although very specific, has demonstrated the ability of the disease to come back strongly in places where people are in close proximity and its ability to exploit any weakness in public health regimes set up to counter it.
Conventional wisdom among scientists suggests second waves of resistant infections occur after the capacity for treatment and isolation becomes exhausted. In this case the concern is that the social and political consensus supporting lockdowns is being overtaken by public frustration and the urgent need to reopen economies.
The threat declines when susceptibility of the population to the disease falls below a certain threshold or when widespread vaccination becomes available.
In general terms the ratio of susceptible and immune individuals in a population at the end of one wave determines the potential magnitude of a subsequent wave. The worry right now is that with a vaccine still months away, and the real rate of infection only being guessed at, populations worldwide remain highly vulnerable to both resurgence and subsequent waves.
The Bank of England’s monetary policy committee warned this month that economic contraction in the second quarter of the year, which includes the period of the most severe lockdown, would be steep and lead to a 14% decline in 2020 overall.
It said a rapid recovery should be expected next year, leading to its scenario being viewed as relatively rapid V-shaped.
“This is perhaps still a V but perhaps a fairly lopsided V,” he said, referring to the shape of the economy’s downturn and recovery. “The risks to that probably … lie to the downside rather than the up and as I say, a rather more protracted recovery even than the one that I have mentioned.”
Haldane’s recasting of the Bank’s outlook follows a poll of City economists last week that showed they view the downturn over the coming months as less severe than Bank of England’s policymakers.
The median average of more than 70 economists surveyed forecast that Britain’s economy would contract 7.7% this year, then grow by 5.2% in 2021.
This prediction came as IHS Markit said its composite index – measuring activity in the dominant services sector and in manufacturing – rose to 28.9 in May’s preliminary from 13.8 in April’s final reading, revealing a stronger bounce back in business confidence than earlier estimates. PMIs below 50 represent a decline in activity.
Speaking at a CBI webinar on Tuesday, Haldane also played down the prospect of an emergency cut in interest rates to below zero as a way to support the economy through the coronavirus crisis.
It followed comments last week by Bank of England governor that the central bank would consider pushing borrowing costs below zero if it considered that the policy would help businesses stay afloat.
Haldane said the key factors for the Bank to consider were the consequences of negative interest rates for Britain’s banks and lenders, which would trigger a squeeze on margins, and how such a move would affect confidence in the broader economy.
“Those are the aspects that we will look at. To be clear, reviewing and doing are different things, and currently we are in the review phase and have not reached a view remotely yet on the doing.”
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