Ben Broadbent, the Bank of England’s deputy governor for monetary policy, told CNBC Friday that tight borders following the rollout of coronavirus vaccines would likely be detrimental to the U.K.’s economic recovery.
Speaking to CNBC, Broadbent said the possibility of tight external borders but an internal opening once coronavirus vaccines had become ubiquitous would weigh on the economy.
“One of the downside risks we flagged is the possible emergence of new variants that are less susceptible to the vaccines. We haven’t examined precisely the effects of the different sorts of restrictions,” he said.
“My instinct would be that if you close borders, that would be negative for both the demand and the supply side of the economy.”
The U.K. government on Thursday announced that incoming travelers from 33 “red-list” countries will have to quarantine in hotels upon arrival from Feb. 15.
Broadbent cited the emergence of new variants of Covid-19 in recent months as a key consideration in the Bank’s outlook.
“That is one of the reasons why as I say, one shouldn’t be too misled by the strength of the growth rate of spending and GDP (gross domestic product) in this forecast, and it is why the level of both of those things is actually below our expectations and new forecasts for the second half of this year than they were three months ago,” Broadbent said.
The BOE on Thursday reduced its GDP growth forecast for 2021 to 5% from the 7.25% projected in its November Monetary Policy Report, and now sees a 4% decline for the first quarter as the country remains under strict nationwide lockdown measures.
The U.K.’s vaccination program has been widely praised for its agility and reach, and it’s on target to have vaccinated 15 million people in its top four priority groups, including health and care workers, the elderly and over-70s and anyone deemed extremely clinical vulnerable, by mid-February.
Broadbent said the public might be “fearful” to spend on things that expose them to the risk of infection and that these concerns may linger even after vaccinations have been broadly administered, but suggested this could be offset.
“One of the things we have seen throughout this episode is a fair bit of substitution away from things that do expose people to infection risk but towards things that do not,” he said.
“Finally I should say that the evidence from last summer was, not just in the U.K. but throughout the world and particularly that part of the world that endured lockdowns, that spending does come back pretty quickly once you remove those caps, at least initially.”
QE might not be first choice
Broadbent said the BOE had allowed for some lingering concerns about virus exposure and their impact on consumer spending but suggested this does not mean consumption overall will fail to recover after the easing of restrictions.
He also emphasized that all components of the Bank’s monetary policy toolkit remain on the table, including asset purchases, forward guidance and interest rates, should the MPC determine that further stimulus is needed to shore up the British economy. He denied that asset purchases would be the policy tool the MPC would prioritize.
“We have yet to take that decision. All these options remain open. We have not ranked them,” Broadbent said.
“We want to ensure that at the very least it was not the technical feasibility of negative interest rates that might prevent their use. There are deeper issues, some of which we outlined last August, about their effectiveness, but the technical feasibility should not be something that stands in the way of them.”
