The Covid-19 pandemic has affected us all for over a year now. My fellow regional officers and I know that companies that rely heavily on being able to show their customers in person – for example, the hospitality and tourism industries across the South West – have been particularly affected.
Many people also spent less than usual – partly because they did not have all the usual opportunities to do so, and partly because some of them lost their jobs and many others. were very worried about losing theirs.
Here in the Southwest, the unemployment rate rose to 4.1% in the three months leading up to the end of February, from 3.1% in the same period a year ago, although the program of government leave has been instrumental in reducing the effects of the pandemic. on jobs.
In the first months of this year, the UK returned to lockdown to stop the spread of the coronavirus, with further tightening of restrictions on activity.
But the drop in spending in the last lockdown was much smaller than it was in the first last year as people and businesses became more adept at operating within the restrictions.
And with a growing proportion of the UK population vaccinated and infection rates falling, restrictions are being relaxed again, allowing businesses to reopen more fully.
It seems likely that getting the vaccine makes people, some of whom will have saved money during the lockdown, more and more confident about going out and spending.
In addition, as we note in the summary of business terms of our agents in the last Monetary Policy Report (MPR), released earlier this month, we learn that some companies are being encouraged to advance their plant and machinery capital spending in response to tax breaks announced in the recent budget.
The summary also notes that our contacts in various industries say their job cuts have largely been completed and a growing number of them are saying they are hiring again.
A reduced risk of job losses should further boost people’s confidence and spending.
All in all, the recovery is already underway and the level of economic activity seems stronger than expected just a few months ago.
The Bank’s latest forecast shows the economy has returned to where it was before the pandemic, in terms of total spending, towards the end of this year.
The swift and substantial action we have taken in response to the pandemic is supporting this recovery.9
By keeping the bank rate at an all-time low of 0.1% and continuing to expand our quantitative easing (QE) program, we are helping to keep interest rates on personal mortgages low and business loans.
We do not intend to increase the discount rate or reduce QE until we have clear evidence that the economy is making significant progress towards a full recovery and that inflation is returning sustainably. to the goal.
As the economy recovers and the effect of last year’s oil and gas price declines wears off, we expect inflation (the pace of price increases), which is currently just on the rise. below 1%, will revert to our target of 2%.
Even though a strong recovery is underway and vaccinations have reduced the risk of another recession, the future path of the economy remains uncertain.
So we can’t look away from the ball.
And we, the officers of the Bank, will continue to gather the intelligence that keeps decision makers here at the Bank up to date with what is happening in the South West and the rest of the UK.