Bank of England governor Andrew Bailey has backed job protection measures announced by Chancellor Rishi Sunak but warned that unemployment is probably higher than thought as the economy struggles to recover.
Mr Bailey, who was speaking to members of the North East England Chamber of Commerce, said Mr Sunak had taken “prompt and decisive action” as fears grow that new restrictions imposed this week will lead to more jobs losses and business failures.
But he warned that there will be a “very, very big downturn” in the economy and that the Bank believed unemployment was probably higher than the figures being recorded in official data.
He said the Bank would continue to take action to shore up the economy but added that there was a lot of uncertainty - including the possibility of a no-deal Brexit - that could make things harder.
He said: “In the third quarter, overall activity in the economy is going to be 7-10% below where it was at the end of last year. That’s obviously a big number - a very, very big downturn in the economy. We’ve still got a long way to go, notwithstanding what’s still going to come our way.
“The other thing I would say is that while we’ve had quite a fast recovery over the summer, we’ve always taken the view at the Bank of England that the hard yards are ahead. Regaining all those extra yards is going to be harder because those are the sectors that have suffered more and are still affected by the restrictions.
“So even before what is now happening, I’d always taken the view that this would be hard and that there was a real risk to the labour market.
“We don’t accurately know what the level of unemployment is at the moment. I don’t blame the statisticians - it’s very hard to capture that. But certainly our view is that it’s higher than it is in the published numbers and that is a risk going forward.”
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Mr Bailey said there were positive signs that consumption was returning to the economy, but he said that investment was weak due to the continuing uncertainty affecting many businesses.
He urged the Government and the EU to make a Brexit deal, saying that “it’s in the interests of all sides to have a trade agreement. Open markets and trade are a great thing - both sides should see that.”
And asked whether the Bank was considering negative interest rates, he said that, while some preparations were being made to ensure that negative rates could technically work, no decision had been taken on whether or when they would be used.