Steve Hicks, Bank of England’s Agent for Wales
It was fantastic to participate in a virtual roundtable with South Wales Chamber members last week. Normally the Bank of England’s Agency for Wales would undertake this type of event in person. But Covid has meant that we have had to do things a little different over the past few months – using new technology to undertake our usual work of engaging with businesses to inform policy decisions in the Bank.
On this occasion we were joined by Jan Vlieghe, a member of the Monetary Policy Committee (MPC), so he could hear first-hand from businesses in South Wales.
This event followed the recent publication of the Bank’s latest Monetary Policy Report which sets out the Bank’s view of the economy and explains why the MPC have made the policy decisions they have.
Covid has meant that households and businesses have been spending less than they were before the pandemic struck. In the third quarter the level of economic activity still remained around 9-10% below pre-Covid levels, and the MPC now expect economic activity to contract in the fourth quarter by 2%.
We think we will start to see recovery from early next year, assuming the impact of Covid does fade, and households and businesses grow more confident to spend and invest.
But we do think that adjusting to a new UK-EU trading relationship, will temporarily lower the pace of the recovery in the first half of the year.
Unemployment has begun to pick-up and we expect it to rise further in 2021, before gradually coming down.
At its November meeting, the MPC announced a further £150 billion of QE, taking the total announced this year to £450 billion – that should help inflation rise back towards the MPCs 2% inflation target in two years’ time.
But the future path of the economy still remains unusually uncertain at the moment, even with the recent developments around an effective Covid vaccine.
A lot will depend on how the pandemic develops and how governments, households, and businesses respond.
As an Agent of the Bank of England I will continue to look and listen to business and feedback to the MPC what I am seeing and hearing in Wales.
The MPC stand ready to provide further support to the economy, if judged necessary.