Bank of England 'ready to act' as economy shrinks 20%

Bank of England Governor Andrew Bailey has said he is “ready to act” to help the UK economy weather the coronavirus crisis.

"We are still very much in the midst of this," Mr Bailey said.

But he said the figure was "pretty much in line" with what the bank expected.

GDP fell by 20.4 per cent, the biggest monthly fall since the Office for National Statistics (ONS) began recording the figures in 1997. It followed a 5.8 per cent contraction in March and a 0.2 per cent drop in February.

The Office for National Statistics (ONS) said April's "historic" fall affected virtually all areas of activity, as large parts of the economy remained shut to battle the pandemic.

The contraction is three times greater than the decline seen during the whole of the 2008 to 2009 economic downturn.

But analysts said April was likely to be the worst month, as the government began easing the lockdown in May.

Mr Bailey said he was hopeful of Britain’s ability to bounce back over time, adding that there were already “signs of the economy now beginning to come back into life”.

Chancellor Rishi Sunak commented that life would get “a little bit more back to normal” when shops re-open next Monday in England. Meanwhile shops in Northern Ireland have already resumed trading, and Scotland and Wales have respective timetables for easing restrictions.

More than one in four UK workers - some 8.9 million - are now on the government's furlough scheme that allows them to receive 80% of their monthly salary up to £2,500.

The scheme has cost £19.6bn so far, while a similar programme for self-employed workers has seen 2.6 million claims made worth £7.5bn.

Without these schemes, household consumption, which makes up nearly two-thirds of the UK's GDP, would have fallen even further.

Meanwhile in US and European stock markets faced their worst one-day falls since March on news of the Federal Reserve’s negative outlook on US economic prospects and further concerns about a possible second wave of coronavirus infections.

The S&P 500 closed the day down 5.9%, the Dow Jones 6.9% and the NASDAQ fell 5.3% from its record high, while the VIX Volatility index saw its greatest one-day rise since March, up 48% to 40.79.

In Europe, the FTSE 100 fell 4%, Germany’s DAX Performance ended 4.5% in the red, France’s CAC 40 closed 4.7% down, Spain’s IBEX 35 fell 5%, Italy’s FTSE MIB was down 4.8%, the Amsterdam AEX dropped 3.4%, while the region’s composite EuroSTOXX 600 finished the day 4.1% lower than it started.