Andrew Bailey, the governor of the Bank of England, has warned the UK economy could suffer worse "scarring" from the coronavirus crisis than originally predicted in August.
Speaking in front of the Treasury Select Committee, the governor said the outlook for the UK is facing a "record level" of uncertainty, rendering any forecasts made for the recovery unreliable.
One of the biggest fears is that the public would exercise "natural caution" in the face of the continued coronavirus threat, which would stop them from "re-engaging" with the economy.
There was broad agreement on two things. One, there's a very high degree of uncertainty… and there's a very big downside skew."
The UK economy suffered a 20.4% hit in the second quarter, bigger than any other European nation, and the Bank predicted it would shrink 9.5% this year and grow 9% next year.
According to Bailey, the coronavirus crisis will wipe 1.5% off the UK GDP in the long run. However, he stressed that the prevailing uncertainty made such forecasts difficult to make.
He said: "There was broad agreement on two things. One, there's a very high degree of uncertainty… and there's a very big downside skew."
The Bank did not include many features of the pandemic into its forecasts, such as continued local lockdowns and the risk of a second wave.
"We didn't make any assumptions about vaccines, we didn't make any assumptions about the precise pattern of COVID going forwards because, frankly, we don't know," Bailey said.
Deputy governor Dave Ramsden added that unless the economic adjustment is very quick and happens quite easily, the "scarring effects over time may be larger" than originally predicted.
This article was first published by our sister title Investment Week