The Bank of England has warned that the recent resurgence of the pandemic could push the economy back into recession.
Ben Broadbent (pictured above), Deputy Governor for Monetary Policy at the Bank of England, explained: “The UK is in the throes of a double-dip recession. GDP is expected to have ended 2020 about 10% lower than at the end of 2019, marking the largest decline, in any calendar year, at least since 1920.
The lockdowns mean that, on a quarterly basis, GDP is likely to have fallen in the fourth quarter of 2020 and is expected to do so again in the first quarter of 2021. This will undoubtedly make the headlines of a ‘recession in double hollow “‘.
The lockdowns did not produce the declines in core inflation forecasters expected in the spring, with core inflation at 1.4% in November, close to its end-2019 level.
“However, I think it’s more conventional factors – economic risk rather than pandemic risk – that we should have in mind when thinking about what might happen to savings and consumption in the medium term. . Because we expect unemployment to rise once the leave plans are phased out, the appropriate response has been to significantly relax the policy. “
Credit fraud pandemic under investigation
After disbursing some £ 68bn in support through a trio of pandemic lending programs, UK banks are now worried about the potential for borrower fraud.
As such, the British Business Bank (BBB) has partnered with PricewaterhouseCoopers (PwC) to examine cases of possible fraud across business loan programs. The bank is also working with government fraud agencies and the industry to mitigate fraud and credit risks, although one estimate found defaults and fraud in the rebound program for small businesses could reach 80% in the worst case.
As of November 2020, figures released by BEIS and BBB suggest that 35-60% of borrowers could default on loans, which would cost the government £ 15-26 billion assuming the program lends a loan. total of £ 43 billion.
At the time, Matthew Cox, Managing Director EMEA, Fraud, Security and Financial Crime at FICO, said: “When the rebound loan program was put in place, the government rushed in so quickly because it needed it and normal lending controls at the bank level. For example, to be eligible, a business had to have been created before March 1, 2020. In addition, very little proof of the health of the business was required. As a result, the fraud is estimated at £ 15-26 billion. As long as a simple fraud check has been performed, the government is 100% responsible for these loans, which means the taxpayer does.
PwC has already been hired by the BBB alongside rivals KPMG and Deloitte to ramp up government-backed lending to distressed businesses in mid-2020. PwC was awarded £ 5.7million to work on the Future Fund – a separate program designed to match up to £ 250million in taxpayer money with private investments in start-ups. The company has developed an online transaction process for issuing convertible loan notes to companies that obtain financing.