LONDON (Reuters) – Bank of England Governor Andrew Bailey told Britain’s banks to speed up lending to companies as the coronavirus crisis threatens to deliver a historic blow to the economy, urging them to “put their back into it and get on with it”.
Bailey said lenders had to address the “serious strain” on their ability to process a surge in demand from small businesses for state-backed loans and suggested they were sticking to risk assessment processes that were too slow.
“Notwithstanding the stress that we’re all operating under in terms of the current working environment, they have got to put their backs into it and get on with it, frankly,” he told reporters on Friday.
Britain’s banks have provided only 1.1 billion pounds ($1.4 billion) in emergency loans to small and medium-sized companies under an emergency scheme in which the government takes 80% of the risk, data published this week showed.
Bailey said a 35% fall in Britain’s economic output in the second quarter of 2020, as laid out in a scenario by the country’s budget forecasters, was “not implausible” and added that early signs indicators showed “a big drop-off in activity”.
He pointed to a big fall in spending on credit cards, a surge in welfare claims, and how activity in the country’s housing market had “dropped basically to nothing”, among other warning signs.
Bailey has only been BoE governor for a month but has overseen a string of emergency moves to support Britain’s economy, including cutting rates to an all-time low of 0.1% and ramping up the central bank’s bond-buying by a record 200 billion pounds.
He said global policymakers who took part in online meetings organised by the International Monetary Fund this week were determined to do what was needed to help their economies through the crisis.
“There is an awful lot of common commitment to do what needs to be done,” he said.
While the IMF predicted a V-shaped recovery for the world economy, meaning a sharp fall followed by quick recovery, there was a lot of uncertainty about whether that would happen, he said.
The BoE’s interest rate-setting Monetary Policy Committee would lay out its view on how much long-term scarring the crisis will inflict on Britain’s economy when it makes its next scheduled announcement on May 7, Bailey added.
Asked about the government’s newly extended overdraft at the BoE, called the Ways and Means Facility, Bailey said finance minister Rishi Sunak had not yet asked to use it.
The BoE agreed to the change to help the government if it is temporarily unable to use the debt markets to borrow all the money it needs for a huge increase in public spending.
Bailey said the British gilt market had calmed down after volatile trading in mid-March and was now “pretty orderly”.
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