How have expectations of the economic impact of the pandemic changed over time?

In the early weeks of the Coronavirus (COVID-19) outbreak the assumption was that the economic impact would be a sharp recession, with a massive drop in output for a short period, and then a quick return to normal as the pandemic was controlled. Some industries might suffer lasting damage, but (the thinking went) there would probably also be a mini-boom as pent-up demand for goods and leisure activities was released. The world would largely continue as it was previously, with increased public debt levels in most countries as a result of paying for economic shutdown measures, and a one-year reduction in GDP and tax revenues.

It’s increasingly clear that this assumption was wrong. Even in those countries that have had relatively small outbreaks with few cases and deaths, moving out of lockdown is a long and careful process, with no end in sight to social distancing measures. For sectors of the economy that rely on jobs that cannot be carried out from home—and of course for leisure, tourism, and hospitality—any recovery looks slow and painful, with reduced profitability due to ongoing restrictions on the number of people who can now be fitted into any given building at the same time. The UK’s extension of its furlough scheme to October shows an increasing realisation that there will be no quick bounceback to the world as it was before.

How has the UK government been reacting in the short term?

In the short term, the government is rightly focused on immediate support measures including protecting employment, minimising the damage to the economy and ensuring liquidity to minimise insolvencies. This means that there has been very little meaningful discussion of the tax and spending choices that may need to be made in future.