The governor of the Bank of England, Andrew Bailey, said “there is light at the end of the tunnel” as he pointed to falling coronavirus infections and a successful vaccine rollout.
But he suggested the economy would need to adapt as people work and shop from home more than before the crisis.
Those spoken to by the Bank expected some degree of home working to become the “new normal”.
But he said it was not clear what impact that would have on the economy.
“Reduced travel time is a positive, but there may be lower innovation and creativity which would otherwise come from people being together more,” Mr Bailey said in a speech to the Resolution Foundation think-tank.
Nevertheless, he said people should be positive about the UK’s economic prospects as the country comes out of the crisis but realistic about the challenges ahead.
“There are reasons to believe that so-called long-term scarring damage to the economy will be lower than in past recessions,” he said. “If I had to summarise the diagnosis, it’s positive but with large doses of cautionary realism.”
Last week, the Office for Budget Responsibility said the economy would recover to its pre-crisis level by the middle of next year, six months earlier than it had previously predicted. Meanwhile, it said unemployment would peak at 6.6%, lower than the 7.5% it forecast last November.
Mr Bailey said the government’s decision to extend the furlough scheme until the end of September was likely to limit the peak in unemployment, but warned that it would be hard to avoid a rise in job losses as the scheme comes to an end.
He said the Bank’s actions, which include lowering interest rates and printing money, have helped reduce long term damage to the economy.
But Mr Bailey was more reserved in his optimism than his colleague Andy Haldane, the Bank’s chief economist.
Writing in the Daily Mail last month, Mr Haldane said the UK economy is like a “coiled spring” ready to release large amounts of “pent-up financial energy”.
He predicted that consumer confidence would surge back thanks to the vaccine programme, with the economy firing “on all cylinders” by spring.
BBC
