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Why the pandemic scars won't run so deep
Publication year - 2021
Publication title -
economic outlook
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.1
H-Index - 8
eISSN - 1468-0319
pISSN - 0140-489X
DOI - 10.1111/1468-0319.12566
Subject(s) - unemployment , limiting , economics , inflation (cosmology) , pandemic , resilience (materials science) , psychological resilience , covid-19 , shock (circulatory) , development economics , monetary economics , demographic economics , macroeconomics , mechanical engineering , medicine , physics , disease , pathology , theoretical physics , infectious disease (medical specialty) , engineering , thermodynamics , psychology , psychotherapist
▪ We now expect the scarring effect from the pandemic on the supply‐side of the UK's economy to be much more limited – a 1% permanent cut to GDP compared to our original estimate of 2.6%. But we still forecast UK GDP growth will average a relatively modest 1.4% a year through the 2020s.▪ The resilience of the labour market is key to our estimate of more limited scarring. We think unemployment may have peaked already at a little more than 1ppt above its pre‐pandemic level, limiting hysteresis effects, while recent ONS data suggests there has not been a mass exodus of foreign‐born workers.▪ We think the UK's large negative output gap will persist for some time, so the risk of a rapid recovery triggering a sustained rise in inflation is low. We also think the repair job for the public finances is smaller than the OBR estimates.