HSBC shoots down Bank of England’s optimism over the economy predicting it will shrink by 10.3% in 2020
Britain’s biggest lender has taken issue with predictions from the Bank of England that the economy may recover to pre-coronavirus levels by the end of 2021.
HSBC has slashed its own expectations for the UK’s recovery, putting it at loggerheads with the Bank of England’s chief economist Andy Haldane.
On these pages last week, Haldane said there were reasons for ‘cautious optimism’, adding that the foundations for a rapid recovery were ‘hiding in plain sight’.
Gloomy outlook: HSBC has slashed its own expectations for the UK’s economic recovery, putting it at loggerheads with the Bank of England’s chief economist Andy Haldane
He added that it was ‘time to see the economic glass as half-full not half-empty’.
But Elizabeth Martins, senior economist at HSBC, said: ‘Unlike Bank of England chief economist Andy Haldane, who thinks it is now time to see the economic glass as ‘half-full’, recent data outturns have made us more pessimistic about the lasting economic impact.’
HSBC is now predicting that the economy will shrink by 10.3 per cent in 2020.
It had previously pencilled in a more moderate contraction of 7.8 per cent this year, forecasting a return to growth of 6.2 per cent in 2021.
But yesterday, Martins said the slump in the second quarter of the year had been worse than expected.
HSBC’s pessimism stands in sharp contrast to the rosier picture which the Bank of England painted this month.
It still thinks unemployment will rise to 7.5 per cent by the end of the year, to around 2.5m people, but believes the economy will contract by a less severe 9.5 per cent in 2020.
It expects a 9 per cent growth in output next year, meaning the economy will return to its pre-pandemic levels by the end of 2021.
HSBC, on the other hand, thinks the economy will only grow 6 per cent next year after the 10.3 per cent fall this year.
By the end of 2021, it will still be 4.5 per cent smaller than at the end of 2019. Martins pointed to the 20.4 per cent fall in output between April and June, and though this included a bounce-back in May and June, she said the recovery was not as big as expected.
Martins did concede that there had been some ‘green shoots’. She said: ‘Lockdown restrictions in the UK were not relaxed properly until 4 July (for cafes, bars and restaurants and even later for institutions like gyms on 25 July).
‘July also saw a further drop in Covid-19 deaths and a fairly low and steady rate of positive new Covid-19 cases as a percentage of all tests.’
But she added: ‘We are less convinced than the Bank of England that the early momentum will be sustained.’
Lloyds Bank, on the other hand, said that the UK’s recovery in July ‘compared favourably’ with other European countries and the US.
In its Recovery Index, published today, Lloyds found that UK businesses’ output increased faster than the global benchmark in 12 of the 14 sectors monitored.
Data released yesterday also showed inflation jumping to 1 per cent in July, boosted by rising petrol prices and fewer summer clothing sales, But savers are being hit by the rise in inflation and falling savings rates.