Andrew Bailey, the new governor of the Bank of England, has said Britain faces an economic emergency caused by Covid-19 and further measures will be needed to prevent widespread disruption turning into destruction.
Speaking in a conference call from an almost deserted Threadneedle Street, Bailey said events had moved on rapidly in the week since the Bank cut interest rates and eased capital requirements on banks as part of a coordinated stimulus with Rishi Sunak’s budget.
“Those were big steps we and the government took a week ago. They were the right steps,” Bailey said. “It is unquestionable, though, that things have moved on a lot in the ensuing period.”
Bailey, who took over from Mark Carney at the start of the week, said one big and worrying development was the impact of the coronavirus crisis on large companies as well as the small and medium-sized businesses that were the focus of the joint Bank-Treasury action a week ago.
The Bank has subsequently announced new measures to guarantee loans and ease the financial pressures on companies that need help while large chunks of the economy are locked down.
Disruption to the economy had clearly taken place over the past week, he said, and the aim of the Bank and the Treasury was to prevent it becoming destructive. “We want to minimise the economic disruption and don’t want a persistent effect that destroys the supply capacity of the economy.”
Speaking as the UK stock market suffered fresh losses, the pound fell below $1.20 against the dollar and oil prices plunged to their lowest level since the early 2000s, Bailey said: “This is going to involve a lot of work. We will, no question, have to come back to this because things will evolve.
“We are facing an emergency. I didn’t think that three days into the job I would be sitting in a virtually empty building. But we are ready to do whatever we have to do.”
The Bank’s monetary policy committee is expected to cut interest rates from 0.25% to a record low of 0.1% and resume the electronic money creation process known as quantitative easing when it meets next week.
Bailey said he was not a supporter of negative interest rates, which would affect the financial viability of banks. Measures to support jobs and the incomes of workers were the responsibility of the Treasury, he added.
The governor, who was closely involved in the Bank’s response to the 2008 financial crisis, said there were echoes of the events of that period.
He said the Bank’s regional agents were detecting some signs of a pickup in the flow of goods from China, the first country to be affected by Covid-19.