Bank of England sees smaller hit to UK economy but slower recovery

The UK economy will take longer than expected to recover from the coronavirus pandemic  Bank of England said Thursday, as it warned of rising unemployment and other risks to its forecast, such as a second wave of infections and Brexit.

The central bank said in a statement that UK GDP is projected to shrink by 9.5% this year, its worst slump in 99 years. That is less severe than the 14% slump it predicted in May, which would have been the worst crash in 300 years. But it also warned of a slower recovery.

"We have an unusually large downside skew on the forecast, which reflects the risks as we see them," Bank of England governor Andrew Bailey told reporters on a call Thursday

While economic activity has picked up since a trough in April, the bank now expects the pace of recovery to slow through the end of the year. And its forecast assumes a post-Brexit comprehensive trade deal with the European Union from January 2021. "We're not taking a strong signal from the recovery in terms of what happens next," Bailey added. UK GDP is now not expected to exceed the level it reached in the final quarter of 2019 before the end of 2021. In May, the central bank had forecast a recovery during the second half of next year. It now predicts GDP growth of 9% next year. "The outlook for the UK and global economies remains unusually uncertain," the bank said in a statement. "It will depend critically on the evolution of the pandemic, measures taken to protect public health, and how governments, households and businesses respond to these factors."