Research Briefing | Jun 14, 2021

UK | Why the pandemic scars won’t run so deep

Why the pandemic scars won’t run so deep

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.

What you will learn:

  • 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.
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