Carney warns economic shock caused by coronavirus ‘could prove large’

mark carney coronavirus

Mark Carney has said the Bank of England will take steps to help the UK through a coronavirus economic shock “that could prove large”.

Mr Carney told MPs that the Bank’s interest rate setting committee was “considering the policy implications of various possible scenarios” that could arise from the outbreak of the coronavirus.

He added that officials around the world were working on a “powerful and timely” response.

But he said the persistence of the economic hit should be different to that of the “lasting scarring” caused by the financial crisis in 2008 – with the virus likely to cause “disruption not destruction”.

Mr Carney added that the Bank was currently in the process of changing its assessment for the UK economic outlook – having only recently cut its forecast for UK GDP growth in 2020 to 0.8%.

The comments come a day after the OECD warned that COVID-19 posed the gravest threat to the global economy since the financial crisis and, if not contained, could plunge many countries in Europe – including the UK – into recession.

But stock markets – which last week suffered their biggest losses since 2008 – have bounced back over the last couple of days on hopes that central banks and governments will take steps to counter the blow.

Last week, Mr Carney told Sky News that Britain should prepare itself for an economic growth downgrade as a result of the impact of the outbreak.

On Tuesday, he told MPs on the Commons Treasury select committee that the Bank’s role “is to help UK businesses and households manage through an economic shock that could prove large but will ultimately be temporary”.

Mr Carney added: “The Bank will take all necessary steps to support the UK economy and financial system, consistent with its statutory responsibilities.

“We are monitoring the situation closely across all our functions and ensuring all necessary contingency plans are in place.”

He said the Bank’s main committees had met jointly on Monday to assess potential scenarios.

Officials have been considering how damage to supply chains could have knock-on consequences on the financial system and how they might deal with “possible constraints” on financing to UK businesses and households.

They have also looked at the contingency plans of banks, insurers and the financial market infrastructure – including how they might continue to operate with teams split over different sites and some employees working from home.

Mr Carney added that he was in contact with Andrew Bailey, who will succeed him as governor later this month.

He added that he has had a “series of discussions” with the chancellor, Rishi Sunak, while the Bank is also in “frequent contact” with the G7 and G20 organisations, as well as the International Monetary Fund.

As Mr Carney was speaking in Westminster, stock markets were heading for a second day of gains – after $5tn (£3.9tn) was wiped from global share value last week.

The FTSE 100 was 150 points, or more than 2%, higher in late morning trading, with strong gains seen across Europe – following a record-breaking rally for Wall Street on Monday.