Concerns of UK's economic recovery from Coronavirus pandemic

  • 10 Sep 2021

Britain’s economic recovery from Covid-19 is slowing amid supply chain disruption and staff shortages, Andrew Bailey, governor of the Bank of England, has warned.

Mr Bailey said evidence was showing signs of the recovery levelling off despite the easing of pandemic restrictions earlier in the summer.

He said the economic fallout had “attenuated a lot”, helping growth to rebound. “But it’s still within the context of this imbalance in demand for goods and services. At the moment we’re seeing some levelling off of the recovery, the short-term indicators are suggesting that,” he said.

 

He suggested that Covid disruption to global supply chains, which have upended industries from car making to hospitality, had proved more persistent than expected by The Bank of England earlier this year, as higher rates of coronavirus infections and heightened demand for manufactured goods put pressure on shipments.

“There’s this underlying story of imbalanced demand, which we thought would by now have been well on the way to correcting itself,” he said.

Mr Bailey said much of the inflationary pressure caused by the pandemic would eventually fade, adding that current high levels of global commodity prices – such as steel, agricultural goods and oil – were likely to fall because market prices typically tend to revert back to average levels over time. “We expect the bottlenecks to sort themselves out,” he added.

However, he expressed concern about a continued shortage of workers, which could last longer than material shortages and push up inflation. “Others will speak for themselves, but I have a bit more concern about persistence in the labour market story,” he told the committee.

There are concerns that shortages of workers and supplies, coupled with high demand for goods and services, could fuel high levels of inflation as the UK emerges from the pandemic. The Bank of England forecasts inflation will hit 4% this year, before gradually falling back towards its 2% target rate.

 

Mr Bailey said the Bank’s rate-setting monetary policy committee would probably be forced to raise interest rates from the current level of 0.1% to combat inflationary pressures over the next two to three years.

He added the committee was evenly split four-four at its August meeting when weighing up whether the economic conditions had been met for raising borrowing costs.

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