BoE’s Bailey calls for ‘cautious realism’ on post-COVID recovery

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LONDON (Reuters) – Bank of England Governor Andrew Bailey said on Monday people should be positive about Britain’s economic outlook emerging from the COVID pandemic, but also realistic about the challenges structural change.

“If I had to sum up the diagnosis, it’s positive but with large doses of cautious realism,” Bailey said in a speech to the Resolution Foundation, a think tank.

A slowdown in new COVID infections and the ‘huge success’ of the UK vaccination program meant there was light at the end of the tunnel.

Bailey said the expected recovery would be facilitated by the BoE’s ultra-low interest rates and its bond-buying program, “and in my opinion, that more than justifies our current stance on monetary policy.”

Finance Minister Rishi Sunak’s decision last week to extend leave support until the end of September was likely to limit the spike in unemployment, but it was unlikely to halt the rise in unemployment completely after the end of the program, Bailey added.

Sunak’s budget also included measures to support economic growth through major investments in infrastructure, skills and innovation, Bailey said, potentially easing one of the brakes on the UK economy.

But there was a lot of uncertainty about the persistence of the economic changes seen during the pandemic.

“We will be working more from home than before and shopping more online because the new habits will persist to a certain extent, and as they dissipate, it will be over a period of time,” he said.

Last month, the BoE said the UK economy would likely contract by 4% in the first three months of 2021 before recovering rapidly over the rest of the year to its pre-pandemic size. ‘by the first quarter of 2022.

Britain has rolled out Europe’s fastest COVID-19 vaccination program, which has so far reached more than one in three adults for a first vaccine.

The BoE has also given UK lenders at least six months of breathing space before any decision to use negative interest rates.

Reporting by David Milliken and William Schomberg

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