The Bank of England has warned that the recent resurgence of the pandemic could tip 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 grip of a double-dip recession. GDP is likely to have ended 2020 at around 10% lower than at the end of 2019, marking the sharpest decline, through 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 likely to do so again in the first quarter of 2021. This will no doubt prompt headlines about a ‘double-dip recession’.
“The lockdowns have not produced the declines in underlying inflation that forecasters expected in the spring, with core inflation at 1.4% in November, close to where it was at the end of 2019.
“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 saving and consumption over the medium term. Because we expect unemployment to rise once the furlough schemes are wound down the appropriate response has been to ease policy significantly.”
Pandemic loan fraud under investigation
Having shoveled-out some £68 billion of support through a trio of pandemic loan programmes, the British banks are now concerned over the potential for borrowers to commit fraud.
As such, the British Business Bank (BBB) has partnered with PricewaterhouseCoopers (PwC) to examine cases of possible fraud across the business loan programmes. The bank is also working with government fraud bodies and the industry to mitigate fraud and credit risks, although one estimate found that defaults and fraud in the bounce back program for small business could reach 80% in the worst case.
In November 2020, figures released by BEIS and the BBB suggest that 35-60% of borrowers may default on the loans, which would result in a cost-to-government of £15-26 billion assuming the scheme lends out a total of £43 billion.
At the time, Matthew Cox, managing director EMEA, fraud, security & financial crime at FICO, said: “When the bounce back loan scheme was set up, the government rushed so fast because they needed to, and they didn’t put all the normal controls on loans at the bank level. For example, to qualify a business had to have been established before 1 March 2020. Also, there was very little proof of business health needed. As a result, the fraud is estimated at £15-26 billion. As long as a simple fraud check was completed, the government has 100% liability for these loans, which means the taxpayer does.
PwC has previously been hired by the BBB alongside its competitors KPMG and Deloitte to speed up government-backed lending to struggling companies in mid-2020. PwC received £5.7 million for work on the Future Fund – a separate programme that was designed to match up to £250 million of taxpayer money with private investment in start-ups. The firm developed an online transaction process for issuing convertible loan notes to companies that win funding.