Money

Mark Carney warns coronavirus will hit the UK economy


Bank of England governor Mark Carney has said coronavirus will hit the UK economy in the months ahead, raising expectations of an interest-rate cut and increasing the chances of a difficult economic forecast for the chancellor in the upcoming Budget.

Speaking to Sky News on Friday, Mr Carney said the central bank had already picked up signs from UK companies it contacts and those abroad that the virus was going to slow economic activity. 

“Things are getting tight,” Mr Carney said, adding that it was “hard to be precise about the magnitude and, very importantly, the duration” of economic harm from the virus, but “the direction is down”.

With more cases appearing outside China, he added: “We’re not out of the woods. There’s less tourism — as you can see on our streets here in the UK. That’s lower activity as well.”

While the outgoing governor did not comment on the effect of the virus on monetary policy as he will not be present at the next meeting on March 26, financial markets have sharply increased the odds of a 0.25 percentage point cut in rates at that meeting. 

A week ago, they were betting on only a 6 per cent chance of a cut. On Friday, the odds rose to 31 per cent. 

Read more about the coronavirus impact

Subscribers can use myFT to follow the latest ‘coronavirus’ coverage

Some members of the BoE’s monetary policy committee are likely to resist any action to boost spending in the face of the virus threat. Jon Cunliffe, deputy governor for financial stability, said on Thursday that since coronavirus was “a pure supply shock there is not much we [on the MPC] can do about it”.

Other central bankers around the world have taken a more nuanced attitude, explaining that if people refrained from spending because of fear of coronavirus, the supply problems could lead to demand shortfalls that could be eased by looser monetary policy. 

With Mr Carney suggesting forecasts for the economy would need to be downgraded, eyes will now turn to the Office for Budget Responsibility’s forecasts that will shape the March 11 Budget. 

Treasury officials have already been preparing the ground for a downgrade to be blamed on the virus, telling the FT this week that it was “no secret” the UK was facing a challenging economic backdrop and “we’ll have to see the economic impact of coronavirus”. 



READ SOURCE

Leave a Reply

This website uses cookies. By continuing to use this site, you accept our use of cookies.