Coronavirus could push the UK economy to its deepest recession on record, a new report published by the Bank of England (BoE) has revealed.

The bank’s latest Monetary Policy Report suggested the UK GDP could shrink by 14% as a whole in 2020, under the circumstances of the Government’s lockdown being relaxed in June.

The BoE said that Covid-19 and the measures to contain its spread have dramatically reduced jobs and incomes in the UK, and also put a big strain on UK businesses’ cash flow.

In the scenario of lockdown ending in June, the report indicated that GDP activity “picks up materially” in the latter part of 2020 and into 2021 after social distancing measures have been relaxed, but that the UK GDP would still not reach its pre‑Covid level until the second half of 2021. In 2022, GDP growth was predicted to be around 3%.

The BoE also announced that its Monetary Policy Committee had voted unanimously to keep the base interest rate at its record low of 0.1%.

Commenting, AJ Bell personal finance analyst, Laura Suter, said the BoE had painted “a very gloomy picture” of the UK economy, with a halving in business investment, a near halving in business sales, a sharp rise in unemployment and households cutting their spending by a third.

“The outlook for GDP is also bleak in the short-term, with a 30% fall in the second quarter of this year compared to the end of 2019,” Suter added.

“The bank is still fairly confident of its projections of a V-shaped recovery, with economic activity picking up ‘relatively rapidly’ once social distancing measures are relaxed. However, it depends how they are relaxed, what businesses can open up first, how quickly they start spending and how much the public remains wary of going out and spending their money.

“Savers who have been battered by a series of cuts to rates can see no bright spot on the horizon as the bank maintains interest rates at the unprecedented low of 0.1% and there’s no sign of them shifting upwards. Banks and building societies have been quick to slash rates, but so far there has been little respite for borrowers.

“With more people taking on more debt in order to get through the current crisis, many will be hoping that sustained low interest rates will provide some breathing space for those with debt.”

Hargreaves Lansdown personal finance analyst, Sarah Coles, commented: “Things are as bad as they seem: we’re living through the deepest economic recession on record.

“And while bad news about the wider economy is always alarming, right now our everyday lives are likely to be far more affected by the fact that 40% of people have seen their income drop and a quarter are now in some kind of financial trouble.

“The government schemes have softened the blow for many people so far, but there’s only so much they can do. Unemployment is expected to jump over the next few months, and remain far higher than before the crisis for a considerable time.

“Unfortunately there are some pretty big assumptions made in this scenario. And if we’re unwilling to go out and about when restrictions are lifted, or employers are cautious about starting up, it could damage the recovery.”

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