Asked by the Today programme’s Martha Kearney what kind of recovery the British public should be expecting, Mr Bailey said the current lockdown has had “a lot less impact on the economy than the first lockdown did last April and that of course is good news.” Figures released last week showed the economy has been more resilient than last April. The bank chief went on to refer to the bank’s monetary policy report produced in February that stated there will be a “recovery in the economy during the rest of this year once the restrictions start to get lifted.”
Mr Bailey added he was now “more positive” but it came with a caution.
He said: “Of course this Covid effect on the economy is huge.
“What we are saying with a recovery is that the economy will get back in terms of activity around the end of this year to where it was at the end of 2019, that’s good news but let’s be realistic it’s not more than getting back to where we were pre-Covid.”
Last week Andy Haldane, chief economist at the Bank of England said the UK economy is like a “coiled spring ready to release a large amount of pent up financial energy.”
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In response to Mr Haldane’s comments, Andrew Bailey said there were two sides to the recovery.
He said: “The risk on the upside are that there has been a very large build-up of saving in the economy largely because people have not able to do the things they normally do.
“The question of course then is to what use will those savings will be put and over what period of time, it could introduce more consumption and more demand into the economy which could be helpful.
The Bank chief referred to cautious Bank of England forecasts which predict “around 5 percent of those savings would be spent over the next two years.”
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But the downside of the Covid recovery was that it will be an unequal one.
Asked about this by the Radio 4 host, Mr Bailey focused his comments on how women and ethnic minorities who work in low paid sections of the labour force have been hardest hit by Covid and will likely experience a harder recovery.
Mr Bailey said: “The effects of Covid have been very unequal and I think it is very important to emphasise this.
“It has affected the low paid more because the sectors of the economy that have had a larger shutdown tend to have a larger concentration of low paid workers.”
Looking ahead, Martha Kearney asked whether unemployment will go above a predicted 7 percent once the furlough scheme comes to an end.
Mr Bailey said that while it is “very helpful” that the furlough scheme is projected to extend beyond the end of the restrictions by a month or two which “should help to smooth that transition” he warned that expecting a transition without some rise is unemployment is unlikely.
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But he expected the Bank of England’s next forecast to show a lower peak in unemployment compared to the first lockdown.
He also hoped that inflation would pick up towards the Bank of England’s 2% target in the next two or three months pointing to low energy prices from last year.
ut he cautioned whether this will be a sustainable rise.
Mr Bailey said: “We will need to see evidence that the trend in the economy and therefore the trend in inflation is sustainable simply because of the huge uncertainty and the huge size of the Covid shock.”
The Bank of England has been buying up Government debt of around £900 billion as part of quantitative easing whereby the Bank of England purchases government debt or other financial assets in order to inject money into the economy and kick-start economic activity.
It is also done to keep interest rates at an appropriate level according to Mr Bailey.
The Government has been borrowing at levels not seen outside wartime and helped by the banks own actions in buying up its debt.