By Andy Haldane, Bank of England Chief Economist, 17 November 2020
Originally published in BSA Society Matters Magazine - Winter 2020
Looking at the positives for a brighter 2021 – economic recovery, human resilience, financial support to those who need it, opportunities emerging out of the pandemic and a Covid vaccine on the horizon.
The Covid-19 pandemic, and the public health responses to it, have led to significant hardships for many people across the UK and globally. Covid has exposed every person on the planet to a double jeopardy – a risk to both their lives and livelihoods.
The facts are sobering. In the first half of the year, economic output in the UK fell by around a quarter, around one million people lost their jobs and 10 million saw their incomes fall. Most tragically, more than 50,000 people have so far lost their lives.
Even in these dark days, however, it is important not to lose sight of the positives, the rays of economic light. Keeping these in mind is important in its own right, but also as a means of preventing fearfulness and uncertainty about the future having a self-fulfilling impact on our economic fortunes.
First, we have seen large parts of the economy recover far-faster than anyone expected. The third quarter saw the largest quarterly increase in UK output ever recorded, with around three-fifths of the output losses recouped, although that still leaves GDP well below its level at the start of the year.
Second, the driver behind this recovery was the behaviour of consumers, who have exhibited remarkable degrees of resilience and flexibility in the face of adversity. Consumers have adapted at pace and scale where and on what they spend in the face of restrictions. So while high street retail and restaurants are sharply down, online retail, supermarkets and takeaways are sharply up. And the housing market is booming.
Third, unlike a decade ago, the financial sector has been part of the solution to the Covid crisis, rather than part of the problem. Millions of payment holidays and new loans have provided essential financial support to households and companies across the UK facing cashflow difficulties. Without this financial support from banks and building societies, personal defaults and business failures would have made a bad economic situation far worse.
Fourth, all crises bring opportunities as well as challenges and this one will be no exception.
- Opportunities to rethink our working practices so that less of our time is spent on the unpaid, unproductive work that is commuting, boosting our well-being and our productivity.
- Opportunities to rebalance our economy regionally, with working and spending now less attached to large city centres, allowing a more even spatial distribution of economic activity.
- Opportunities for firms, financial and non-financial, to re-invest in their digital infrastructures and the digital skills of their staff, in ways that boost firms’ performance and productivity and workers’ pay and prospects.
- And opportunities to forge ahead in meeting the UK’s net zero target by 2050, with reduced levels of travel having provided a down-payment.
- Last but by no means least, we have recently received encouraging news about vaccines which, if they come good, would provide clear light at the end of the dark tunnel of this year: an end to the fearfulness that has scarred us as individuals; and an end to the stop-go cycling that has disrupted our businesses. The boost that could provide, financially and psychologically, should give us all realistic hopes of a far brighter 2021.
17 November 2020