Economic recovery at risk

We’re not out of the woods yet, warns VliegheBank of England rate-setter Gertjan Vlieghe has warned that it is still possible that more stimulus will be needed if the recovery falters due to fears over Covid variants. He said: “Despite an improved economic outlook and a likely temporary rise in inflation in the near term, a major challenge for the economy remains to integrate the large numbers of currently furloughed workers smoothly back into the labour market. Only once the furlough scheme has ended will we have a better idea of how much persistent slack there is in the labour market.” Vlieghe added that an interest rate cut below the current record low of 0.1%, to -0.25%, for as long as three years, was possible under his worst-case scenario for the economy. The Bank would raise rates from 0.1% to 1.25% by the middle of 2024 in his optimistic scenario. Vlieghe also dismissed inflation fears arguing that we are not witnessing a broad-based increase in prices.