Britain is in a much stronger position than anyone thinks


How quickly could the UK economy recover from the Covid shock and what will it look like on the other side of the pandemic? The honest answer to these questions would be to say that no one knows. Don’t believe those who claim to do it; if their predictions turn out to be correct, it will be as much luck as judgment.It is nevertheless the painful duty of the Bank of England to at least try. Usually her predictions are pretty good, but when the going gets tough she tends to struggle with us. Repeated predictions of a relatively rapid rebound after the financial crisis have proven woefully irrelevant. It took six years for the UK economy to regain its pre-bank state. The standard of living suffered an even longer disruption.

It should therefore come as no surprise that this time the Bank is spicing up its forecasts with multiple reserves. The central, most likely scenario of the Bank is that of a smaller-than-expected peak-to-trough economic collapse three months ago, but then a slower rebound as the economy does not return. where it was before the end of next year.

Yet perhaps the most striking part of the Bank’s prognosis is the range of other possible outcomes it is willing to accept – much wider than it had ever anticipated.

In the most optimistic scenario, economic output recovered almost fully by the end of this year, with growth returning to trend thereafter. In the most pessimistic case, the current V-shaped recovery is quickly running out of steam and GDP remains well below pre-pandemic levels for at least the next three years.

In writing about the economic impact of foreclosure, I tended to sidestep between these two extremes, covering all the bases as I go. Wherever we meet, I can point to a column that says the same. It’s cheating, sure, but it’s quite common among experts, although it’s rarely admitted.

Yet it also reflects the same extraordinary level of uncertainty that Andrew Bailey, Governor of the Bank of England highlights in his latest Monetary Policy Committee report. There is no way to know; it all depends on the progression of the disease, the political response to it, and the long-term behavioral changes the lockdown has inflicted.

Chief among these structural changes is the turbo shift from physical retail to e-commerce and from office to work from home. It is far from clear how the economy could adapt to accommodate them.

Today, however, I will present the most optimistic case. It’s certainly not an easy thing amid the now-daily torrent of job loss announcements, the upsurge in local lockdowns and a hyper-cautious, panicked government that reimposes quarantine in the blink of an eye. and warns that this may still not be possible. reopen schools in September.

A recent Morgan Stanley survey further found that Britons are the slowest and most reluctant in Europe to return to office as restrictions are lifted. Employees have to be careful what they want; while work previously based in central London can be done from Surrey, it can just as easily be done in Mumbai at low cost.

Others take full advantage of their six months of paid vacation with leave. It is not good either. They are about to wake up abruptly when the program ends and they find they are out of work.

But sometimes it pays to go against the grain, and all of my instincts against the grain tell me not only that the Covid hysteria will be largely behind us early next year, but that the economic rebound can also be a little faster than you generally think.

Start with the old truism that, just like in a boom, things are never as good as they look, nor as bad as they look in the depths of a crisis. Covid is driving big structural changes in the economy, but I wonder if they will be as transformational as expected.

The idea, for example, that we’ll definitely forgo a lot of social spending and instead choose to stay home with a bottle of wine and a Netflix subscription strikes me as deeply improbable. Once the pandemic is over, much of this activity will resume.

I am also skeptical of the death of the office. Businesses that are considering drastically reducing their workspace will soon find that working from home and Zooming alone are poor substitutes for a busy workplace. A business populated by colleagues who have never physically met is unlikely to function well. Similar predictions have been made about the outlook for offices during the financial crisis and towers after 9/11. It didn’t last.

Human beings are social animals. They go to the office as much for camaraderie, leisure and the social contact of city life as for earning a living. The same goes for overseas mass tourism. It will resume as soon as it is authorized.

Obviously, some of the enforced behavioral changes we saw in the lockdown will remain; many businesses will not survive the upheaval. But as confidence returns, others will quickly take their place.

Unlike 2008, there is no problem with the banks, nor with their ability to lend to the economy. Equity markets are also happy to refinance essentially healthy companies. Unemployment will undoubtedly increase with the end of the holidays, but probably not as much as some of the more frightening forecasts would have you believe.

Many of those who lose their jobs will choose to become economically inactive, and many of our migrant workers will return home. The UK labor market and economy are much more flexible than we think.

Economies have exploded during the pandemic, indicating a high degree of pent-up demand. This money will return to the economy once the outlook is secure.

For now, the opposite and pessimistic case tends to dominate the wider media conversation. The data, both on the disease – which has adjusted for more in-depth testing, focused on hot spots, indicates a stable or even declining infection rate – and on the economy – which indicates a continued, abrupt recovery and real-time activity – suggest otherwise.


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