Saudi Press

Saudi Arabia and the world
Thursday, Oct 02, 2025

Bank of England warns of sharp UK recession

Bank of England warns of sharp UK recession

The Bank of England has warned that the UK economy is heading towards its sharpest recession on record.

The coronavirus impact would see the economy shrink 14% this year, based on the lockdown being relaxed in June.

Scenarios drawn up by the Bank to illustrate the economic impact said Covid-19 was "dramatically reducing jobs and incomes in the UK".

Bank governor Andrew Bailey told the BBC there would be no quick return to normality.

He described the downturn as "unprecedented", and said consumers would remain cautious even when lockdown restrictions are lifted.

Mr Bailey said: "Not all of the economic activity comes back. There's quite a sharp recovery. But we've also factored that people will be cautious of their own choice.

"They don't re-engage fully, and so it's really only until next summer that activity comes fully back."

Also on Thursday, policymakers voted unanimously to keep interest rates at a record low of 0.1%. However, the Monetary Policy Committee (MPC) that sets interest rates was split on whether to inject more stimulus into the economy.

Two of its nine members voted to increase the latest round of quantitative easing by £100bn to £300bn.

The Bank's analysis, published on Thursday, was based on the assumption that social distancing measures are gradually phased out between June and September.

Its latest Monetary Policy Report showed the UK economy plunging into its first recession in more than a decade. The economy shrinks by 3% in the first quarter of 2020, followed by an unprecedented 25% decline in the three months to June.

This would push the UK into a technical recession, defined as two consecutive quarters of economic decline.

The Bank said the housing market had come to a standstill, while consumer spending had dropped by 30% in recent weeks.

For the year as a whole, the economy is expected to contract by 14%. This would be the biggest annual decline on record, according to Office for National Statistics (ONS) data dating back to 1949.

It would also be the sharpest annual contraction since 1706, according to reconstructed Bank of England data stretching back to the 18th Century.

While UK growth is expected to rebound in 2021 to 15%, the size of the economy is not expected to get back to its pre-virus peak until the middle of next year.

The UK government is expected to start easing lockdown restrictions next week.

The Bank stressed that the outlook for the economy was "unusually uncertain" at present and would depend on how households and businesses responded to the pandemic.


It also assumes:

The government's jobs retention scheme covering 80% of wages is phased out with the lockdown.
Companies stop or scale back their operations for some time.
Cautious consumers voluntarily maintain social distancing until mid-2021.
'Bold action'
Mr Bailey said he expected any permanent damage from the pandemic to be "relatively small". The economy was likely to recover "much more rapidly than the pull back from the global financial crisis," he said.

He also praised the action by the government to support workers and businesses through wage subsidies, loans and grants. He said the success of these schemes and the Bank's own stimulus meant there would be "limited scarring to the economy".

"The furloughing scheme really does enable people to come back into the economy more quickly so it's a much quicker recovery that we've seen in the past."

James Smith, research director at the Resolution Foundation, said the hit to the economy this year was equivalent to £9,000 for every family in Britain.

He said: "Faced with this huge economic hit, both the Bank and the government have made the right call in taking bold action to protect firms and families as much as possible."

Average weekly earnings are expected to shrink by 2% this year, reflecting the fall in wages for furloughed workers.

The Bank said sharp increases in benefit claims were "consistent with a pronounced rise in the unemployment rate", which is expected to climb above 9% this year, from the current rate of 4%.

Under the Bank's scenario, inflation, as measured by the consumer prices index (CPI) falls to zero at the start of next year amid the sharp drop in energy prices.It is also expected to remain well below the Bank's 2% target for the next two years.


Cautious consumers

The Bank's latest Financial Stability Report said the Bank's scenario was consistent with a 16% drop in house prices. Latest figures published by UK finance show one in seven mortgage holders has taken a payment holiday due to the coronavirus.

The Bank said the number of new mortgage deals on offer had halved in just over a month as banks focused on the deluge of payment holiday requests. This includes a huge contraction in deals for buyers with a deposit of less than 40% of the purchase price.

The MPC also highlighted the stark drop in consumer spending. It said spending on flights, hotels, restaurants and entertainment had dropped to a fifth of their previous levels.

Shopping at High Street retailers had dropped by 80%, while business confidence was described as "severely depressed".

Philip Shaw, an economist at Investec, described the Bank's scenario as "optimistic", particularly its assumption that unemployment would fall back to its pre-crisis low in two years.

"Exactly how the economy evolves will depend critically on how the government calibrates its policies and how they are unwound and tapered," he said. "There is plenty that could go wrong."

Newsletter

Related Articles

Saudi Press
0:00
0:00
Close
Altman Says GPT-5 Already Outpaces Him, Warns AI Could Automate 40% of Work
Trump Organization Teams with Saudi Developer on $1 Billion Trump Plaza in Jeddah
Electronic Arts to Be Taken Private in Historic $55 Billion Buyout
Colombian President Petro Vows to Mobilize Volunteers for Gaza and Joins List of Fighters
Nvidia and Abu Dhabi’s TII Launch First AI-&-Robotics Lab in the Middle East
UK, Canada, and Australia Officially Recognise Palestine in Historic Shift
New Eye Drops Show Promise in Replacing Reading Glasses for Presbyopia
Dubai Property Boom Shows Strain as Flippers Get Buyer’s Remorse
Top AI Researchers Are Heading Back to China as U.S. Struggles to Keep Pace
JWST Data Brings TRAPPIST-1e Closer to Earth-Like Habitability
UAE-US Stargate Project Poised to Make Abu Dhabi a Global AI Powerhouse
Trump and Starmer Clash Over UK Recognition of Palestinian State Amid State Visit
Saudi Arabia cracks down on music ‘lounges’ after conservative backlash
Saudi Arabia Signs ‘Strategic Mutual Defence’ Pact with Pakistan, Marking First Arab State to Gain Indirect Access to Nuclear Strike Capabilities in the Region
Sam Altman sells the 'Wedding Estate' in Hawaii for 49 million dollars
Turkish car manufacturer Togg Enters German Market with 5-Star Electric Sedan and SUV to Challenge European EV Brands
World’s Longest Direct Flight China Eastern to Launch 29-Hour Shanghai–Buenos Aires Direct Flight via Auckland in December
New OpenAI Study Finds Majority of ChatGPT Use Is Personal, Not Professional
Kuwait opens bidding for construction of three cities to ease housing crunch.
This Week in AI: Meta’s Superintelligence Push, xAI’s Ten Billion-Dollar Raise, Genesis AI’s Robotics Ambitions, Microsoft Restructuring, Amazon’s Million-Robot Milestone, and Google’s AlphaGenome Update
Indian Student Engineers Propose “Project REBIRTH” to Protect Aircraft from Crashes Using AI, Airbags and Smart Materials
Could AI Nursing Robots Help Healthcare Staffing Shortages?
Turkish authorities seize leading broadcaster amid fraud and tax investigation
Qatari prime minister says Netanyahu ‘killed any hope’ for Israeli hostages
Apple Introduces Ultra-Thin iPhone Air, Enhanced 17 Series and New Health-Focused Wearables
Big Oil Slashes Jobs and Investments Amid Prolonged Low Crude Prices
Social Media Access Curtailed in Turkey After CHP Calls for Rallies Following Police Blockade of Istanbul Headquarters
Did the Houthis disrupt the internet in the Middle East? Submarine cables cut in the Red Sea
Gold Could Reach Nearly $5,000 if Fed Independence Is Undermined, Goldman Sachs Warns
Uruguay, Colombia and Paraguay Secure Places at 2026 World Cup
Trump Administration Advances Plans to Rebrand Pentagon as Department of War Instead of the Fake Term Department of Defense
Tether Expands into Gold Sector with Profit-Driven Diversification
Trump’s New War – and the ‘Drug Tyrant’ Fearing Invasion: ‘1,200 Missiles Aimed at Us’
At the Parade in China: Laser Weapons, 'Eagle Strike,' and a Missile Capable of 'Striking Anywhere in the World'
Information Warfare in the Age of AI: How Language Models Become Targets and Tools
Israeli Airstrike in Yemen Kills Houthi Prime Minister
After the Shock of Defeat, Iranians Yearn for Change
YouTube Altered Content by Artificial Intelligence – Without Permission
Iran Faces Escalating Water Crisis as Protests Spread
More Than Half a Million Evacuated as Typhoon Kajiki Heads for Vietnam
HSBC Switzerland Ends Relationships with Over 1,000 Clients from Saudi Arabia, Lebanon, Qatar, and Egypt
Sharia Law Made Legally Binding in Austria Despite Warnings Over 'Incompatible' Values
Dogfights in the Skies: Airbus on Track to Overtake Boeing and Claim Aviation Supremacy
Tim Cook Promises an AI Revolution at Apple: "One of the Most Significant Technologies of Our Generation"
Are AI Data Centres the Infrastructure of the Future or the Next Crisis?
Miles Worth Billions: How Airlines Generate Huge Profits
Zelenskyy Returns to White House Flanked by European Allies as Trump Pressures Land-Swap Deal with Putin
Beijing is moving into gold and other assets, diversifying away from the dollar
Cristiano Ronaldo Makes Surprise Stop at New Hong Kong Museum
Zelenskyy to Visit Washington after Trump–Putin Summit Yields No Agreement
×