The rate-setting Monetary Policy Committee, which sets policy for the U.K. as a whole, said the outlook for the economy “remains unusually uncertain” in light of the recent spike in coronavirus infections and questions over the trading relationship with the EU from the start of next year.
Though the committee noted that recent domestic economic indicators have been a “little stronger than expected” at the time of its last policymaking meeting in early August, it said it is unclear how informative the recent news is about the future “given the risks.”
The British economy suffered one of the deepest recessions in the world this year when many sectors were effectively mothballed as part of efforts to contain the coronavirus pandemic. Though it has recouped some ground over the past few months as lockdown restrictions were eased, the economy was still around 12% smaller at the end of July that it was in February, when the pandemic started in Europe.
Worries are mounting that Britain and other countries will reimpose broad restrictions on businesses and public life after the recent flare-up in contagions across Europe. Already social gatherings are being restricted and certain areas of the U.K. are seeing localized lockdowns.
The nine rate-setters at the bank said the outbreak and associated measures to contain it “have the potential to weigh further on economic activity, albeit probably on a lesser scale than seen earlier in the year.”
They also said that there “remains a risk of a more persistent period of elevated unemployment” than it had anticipated in August. At that time, the bank's central forecast was that unemployment would not spike as much as previously feared, rising to around 7.5% from the 4% level.