Britain’s Economy to Contract Severely in 2020, But BOE May Not Resort to Negative Rates

According to economists polled by Reuters, Britain is headed into the most severe economic recession in hundreds of years as a result of the coronavirus pandemic. However, the dire economic situation may still not see the BOE cutting interest rates below zero.

Economists expect the British economy to contract by 17.5% in Q2 2020, a more severe contraction than the 13.1% rate forecast in last month’s poll. The worst case scenario anticipated in the latest edition of the poll sees the economy contract by as much as 22.5% in the present quarter.

However, with the lockdown set to ease and the economy moving towards reopening over the coming weeks and months, the British economy could post a rebound and grow by 11.9% in Q3 2020. Analysts have stated that the economy was most severely affected during the month of April due to the lockdown but is showing signs of recovery in May with restrictions being eased.

Overall, Britain’s economy could contract by 7.7% in 2020, and then post a growth of 5.2% next year as economic recovery gets underway. However, in addition to the coronavirus crisis, the economy faces considerable risk from Brexit, with the transition period slated to end by December 31 this year, which could exert more pressure on the GDP.