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UPDATE 1-Bank of England policymakers warn UK economy facing bigger risks

Wed, 2nd Sep 2020 15:34

(Adds details, background)

By Andy Bruce and William Schomberg

LONDON, Sept 2 (Reuters) - Bank of England Deputy Governor
Dave Ramsden and another interest-rate setter, Gertjan Vlieghe,
warned on Wednesday of risks that Britain's economy could suffer
more damage than spelt out by the central bank last month.

Ramsden told lawmakers that the BoE had estimated the level
of Britain's economic output would permanently be about 1.5
percentage points lower than it would have been without the

"For me all the risks are really that that number will be
greater than 1.5%," Ramsden said.

Vlieghe said there was "a material risk" that it could take
several years for Britain's economy to return to full capacity
after its coronavirus shock.

The BoE said in August it expected Britain's economy to
recover its pre-COVID-19 size by the end of next year.

Britain's economy shrank by more than 20% in the April-June
period, worse than any other big industrialised nation. That was
partly because the country locked down later than many of its
European peers.

In an annual report to parliament's Treasury Committee,
Vlieghe said some sectors might not be able to return to their
pre-pandemic size, leading to a reorientation of the economy.

"Based on these considerations, there is a material risk in
my view that it could take several years for the economy to
return to full capacity and inflation to return sustainably to
target, even with monetary policy at its current settings," he
said in the report.

Governor Andrew Bailey told the lawmakers in Wednesday's
online session that inflation might not be as weak as estimated
by the BoE last month, citing evidence that many businesses had
not passed a value-added tax cut on to customers as much as had
been expected.

"So that will tend to cause short-run inflation to be higher
than we thought it would be, and it probably won't now go

Asked for his views on the recovery in the economy after its
lockdown, Bailey said the bounce back in consumption had been
very fast while investment had been weak.

He also said a geographic breakdown of spending data showed
that London had seen the weakest revival of credit card spending
since the lockdown.

The capital has been particularly hard hit by the reluctance
of many workers and their employers to get back to their usual
places of work. Prime Minister Boris Johnson this week repeated
his calls for people to return to their workplaces.
(Additional reporting by Kate Holton, Estelle Shirbon and
William James; Writing by William Schomberg; Editing by
Catherine Evans)

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