BoE’s Cunliffe anticipates ‘great deal of pain’ for financial sector
The initial shock of the pandemic to the financial system may have passed but another abrupt repricing of risk is possible, according to the Bank of England’s (BoE) deputy governor.
“The first phase – the initial shock and adjustment to a far more challenging economic outlook in the near term – has passed,” Sir Jon Cunliffe told an Investment Association online event.
However, he added: “The Covid crisis is very far from over. The depth and length of its economic impact remain very uncertain: it is clear that there is likely to be a great deal of pain for the financial sector”.
Cunliffe also said negative interest rates were a possible tool the BoE might use to support demand. He said the Monetary Policy Committee “will want to think about the impact negative rates would have on the UK financial system.”
Since the start of the coronavirus outbreak, the BoE has slashed its main rate to a record low of 0.1 per cent, prompting questions about whether it will cut into negative territory to stimulate the economy further.
Last week the bank’s chief economist said it was nowhere near close to any decision on taking interest rates below zero to cope with the pandemic. Andy Haldane said the key factors for the BoE to consider were the consequences of negative rates for banks and lenders, which would squeeze margins.
Yesterday Haldane warned that the UK is facing what appears to be a record level of inactivity in its labour market.
Speaking in an online discussion at the CogX technology conference, he said: “We’ve seen activity across the economy collapse, and we’ve seen a rapid rise in inactivity among workers – both people being made unemployed, but importantly… 8m people underemployed due to furlough schemes”.
“That’s a level of inactivity in the jobs market we haven’t seen, possibly ever.”
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