Economic hit ‘less severe than feared’

The UK's economic downturn caused by the COVID-19 pandemic will be less severe than initially feared, according to the Bank of England.

The UK economy looks on course for a 9.5% decline this year, compared with May's forecast of a 14% annual contraction.

This would mark the biggest annual drop in a century, while the Bank said the UK faces a slower economic recovery from the coronavirus.

In its first official forecast since the pandemic struck, the Bank said UK GDP is expected to have been more than 20% lower in Q2 2020 than in Q4 2019.

But higher-frequency indicators imply that spending has recovered significantly since activity flatlined during lockdown in April.

Payments data suggests household consumption in July was less than 10% below its pre-coronavirus level at the start of the year.

Housing market activity appears to have returned to close to normal levels, despite signs of a tightening in credit supply for some households.

Less evidence is available on business spending, but surveys suggest business investment is likely to have fallen markedly in Q2 2020.

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