The UK’s rollout of Covid-19 vaccines will help the economy to a ‘strong recovery’, the Bank of England has said.
The economy is expected to shrink 4.2% in the first quarter of this year, with the whole of the UK in lockdown. But the Bank expects consumer confidence and spending to “recover rapidly” throughout the rest of 2021. It added that the vaccine rollout will lead to a “material recovery in household spending”.
Andrew Bailey, the governor of the Bank of England, said: “We do think that that is going to support a sustained recovery throughout the rest of the year.”
However, the UK’s unemployment rate is still forecast to rise as high as 7.8% later in the year as the furlough scheme comes to an end.
The Bank did stress that a rebound in economic activity would depend on the country’s ability to control any new variants of the virus, and that some aspect of social distancing measures were likely to remain in place.
It said: “The Covid vaccination programme would be expected to lead to an easing of social distancing restrictions, reduced economic uncertainty and higher activity, although the timing of those effects is hard to predict.”
In its latest policy update, the Bank told financial markets to prepare for negative interest rates while ruling them out in the short term. Negative interest rates are typically used to encourage consumers to spend more and save less. It said £125 billion was saved in bank accounts by the public in 2020, a figure which is expected to continue rising in the first half of 2021.