UK Economy set to hit pre-Covid levels this year, says Bank of England

The UK economy is on track to return to pre-pandemic levels by the end of the year, according to Bank of England Governor Andrew Bailey.

Andrew Bailey said that a recent rise in interest rates in financial markets was consistent with an improvement in the economic outlook.

Growing signs that the vaccination programme is going to be a success and crucial slow the new variants of Covid-19 have led Britain’s top banker to speculate, that the economy could bounce back sooner rather than later.

Mr Bailey said he was "not out of firepower" in defending the economy as it recovers from the pandemic. He said he was looking at "new tools" to deal with the UK's biggest economic shock in 300 years. These could include negative interest rates, but "that's not a view on whether we will use them or not".

Although he did not commit one way or the other on the use of negative interest rates, he said it was "appropriate to have that tool in the box".

Mr Bailey said the Bank expected inflation to start rising towards its 2% target in "the next two or three months".

But he added that the Bank's rate-setting Monetary Policy Committee would need to see "a lot more evidence" that the inflationary trend was sustainable before acting, given the "huge uncertainty" over the economic effects of Covid.

Mr Bailey said he had seen "no evidence" to support warnings that inflation could hit 4% or 5% as the recovery gathered pace.

He said the UK's vaccination campaign had been "a great achievement" and he was now "more positive" about the recovery, but he wanted to add "a large dose of caution".

"The economy will actually get back at the end of this year to where it was at the end of 2019," he said. However, that was "not much more than getting back to where we were pre-Covid".

Mr Bailey warned that new variants of the virus could still pose a risk to the recovery.

He also said the economic effects of the pandemic had been "very unequal". "Covid has affected the low-paid more. There are more women in that section of the labour force," he said. Ethnic minorities were also disproportionately affected, he added.

Mr Bailey said it was "very helpful" that the furlough scheme was now projected to extend beyond the lifting of Covid restrictions, which should "help to smooth that transition".