Mr Bailey also insisted the Bank had not run out of “firepower” in its ability to keep the economy on track including introducing negative interest rates. It comes after significant amounts of quantitative easing have been pumped into the system and interest rates at an historic low.
Speaking to the BBC, Mr Bailey said: “The economic effects of the restrictions appear over time to be reducing.”
The Bank of England now predicts the economy to return to levels seen at the end of 2019, before the pandemic hit.
“That’s good news, but let’s be realistic. It’s not more than getting back to where we were pre-Covid,” the Governor said.
Mr Bailey highlighted the high level of pent up household saving as a means of kickstarting the economy.
“We now have a more balanced picture of risks… The risks on the upside are that there has been a very large build-up in savings in the economy, largely because people have not been able to do the things they normally do.
“The question of course then is: to what use will those savings be put and over what period of time? It could introduce more consumption and more demand into the economy.”
He pointed out that around 5 per cent of savings could be spent over the next two years but “it could be larger”.
Any new Covid variants that require further restrictions and lockdowns would also knock the economy, he added.
But the governor said the Bank of England was ready to use more “firepower” if required, including the introduction of negative interest rates to encourage spending.
He also rejected growing fears that inflation could rise to 4 or 5 per cent by the end of the year as the economic recovery gathers pace. There was “no evidence” that inflation would rise to such levels, he insisted.