In its quarterly economic update, the Bank of England forecast that the economy was likely to dip by around 9.5% this year compared with a previous estimate of 14%, which will still be the largest annual drop in 100 years.
- 1m job losses
- 9.5% economic dip
- 2021/22 expected return to economic normality
To limit the financial damage, the UK's central bank has said it will not increase interest rates above 0.1%, which is the level they were reduced to at the start of the pandemic in March.
The leisure sector, including hospitality, however, has seen subdued spending which will hinder economic recovery, the report said.
Next year the economy is expected to grow by 9% and then 3.5% in 2022, but the Bank remained uncertain about the overall outlook.
Yet, it predicted spending and the overall economy was likely to return to pre-coronavirus levels by the end of 2021.
Employment levels would likely drop by around 7.5% (or about one million) as Government schemes and support come to an end, which will contribute to a shrink in average earnings not seen since the 2008 financial crisis.
“Employment appears to have fallen since the Covid-19 outbreak, although this has been very significantly mitigated by the extensive take-up of support from temporary government schemes,” said the report.
“Surveys indicate that many workers have already returned to work from furlough, but considerable uncertainty remains about the prospects for employment after those support schemes unwind.
“In the near term, the unemployment rate is projected to rise materially, to around 7.5% by the end of the year, consistent with a material degree of spare capacity.”