Coronavirus: Mark Carney warns economic shock from Covid-19 outbreak could be large

Bank of England governor says impact will be temporary as he lays out plan of action to mitigate damage

Ben Chapman
Tuesday 03 March 2020 11:31 GMT
Boris Johnson tells public to wash their hands during press conference about coronavirus

Bank of England governor Mark Carney has warned of a potentially large economic shock from the coronavirus outbreak.

However, he told MPs on the Treasury Select Committee that the impact will ultimately prove to be temporary.

The governor’s comments come as the ministers’ latest plans revealed that up to a fifth of the UK workforce could be off sick at the peak of a coronavirus epidemic.

Across the country, 51 cases of Covid-19 have been confirmed while globally, 3,000 people have died from the respiratory disease caused by the virus.

Mr Carney said NHS workers, carers and public health officials were on the front line of tackling coronavirus.

“The Bank of England’s role is to help UK businesses and households manage through an economic shock that could prove large but will ultimately be temporary,” he said.

“The Bank will take all necessary steps to support the UK economy and financial system, consistent with its statutory responsibilities.”

He added that he has been holding a series of discussions with the chancellor and said the Bank is ensuring “all necessary contingency plans are in place”.

Mr Carney said the financial system was prepared for an economic shock thanks to stress tests regularly carried out on banks’ balance sheets. The tests simulate a range of potential shocks, including a dramatic economic slowdown in China and Hong Kong. The Chinese economy has been impacted significantly by the virus with factories shut down and planes grounded, delivering a knock-on effect for companies that source goods and materials from China.

“We don’t know what’s going to happen,” Mr Carney said. “Certainly the situation we are entering, the economic situation we are entering because of the virus – we didn’t run a stress test against that specific situation but we can learn from the stress tests we’ve been carrying out since 2014 about the resilience of the institutions against that type of risk.”

Banks have “considerable capital and strength” with which to support businesses through the shock resulting from coronavirus, the governor said.

“it’s not just lending to businesses ... for new investment or expansion, it can be working capital and other very essential aspects for businesses who know that this is a difficult but ultimately temporary situation.”

He added: “We would want the banks to be able to use their balance sheets in order to support their customers and, by extension, support the economy.”

The Bank of England will also look at facilities it can provide to help support lending to small and medium-sized businesses, Mr Carney said.

Asked by Labour MP Angela Eagle about the impact of coronavirus on UK workers, including those on zero-hours contracts or working in the gig economy, Mr Carney refused to be drawn.

“I don’t want to lead the government, but these are considerations we all need to take into account,” he said.

Greggs chief executive Roger Whiteside said on Tuesday that its staff would be paid for their contracted hours if they had to self-isolate because of the virus.

“Our default position is that we pay contract hours. We don’t have any zero contract hours,” he told the BBC.

Wetherspoons said last week that its 45,000 employees would be paid statutory sick pay if they isolate themselves. Statutory sick pay is £94.25 per week for workers who have been off for more than four days.

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