The economy is expected to shrink 4.2 per cent in the first three months of 2021, amid tighter lockdown restrictions to slow the spread of the virus. But, the BoE policymakers expect a rebound this spring as consumer confidence returns.
Covid-19 (Covid) and the actions to contain it have continued to have a dramatic and rapidly changing impact on the UK and countries around the world. Since the last Monetary Policy Committee's (MPC's) Report last November, Covid vaccination programmes have begun in a number of countries, including the UK, which have improved the economic outlook.
Nevertheless, recent UK and global activity has been affected by an increase in Covid cases, including from newly identified strains of the virus, and the associated reimposition of restrictions. The economic outlook continues to be unusually uncertain. It will depend on the evolution of the pandemic and measures taken to protect public health around the world. It will also depend on the responses of households, businesses and financial markets to those developments.
The MPC's forecasts assume that Covid-related restrictions and people's health concerns weigh on activity in the near term, but that the vaccination programme leads to those easing, such that GDP is projected to recover strongly over 2021 towards pre-Covid levels. Projected activity is also supported by the substantial fiscal and monetary policy actions already announced. Further out, the pace of GDP growth slows as the boost from those factors fades.
The fall in activity over the past year has reflected a decline in both demand and supply. Overall, there is judged to be a material amount of spare capacity in the economy at present. This is eliminated as GDP picks up during 2021. CPI inflation is currently below the MPC's two per cent target, largely reflecting the direct and indirect effects of Covid-19. As temporary effects fade and the impact of spare capacity diminishes over 2021, inflation rises towards the target. In the central projection, conditioned on the market path for interest rates, inflation is projected to be close to two per cent over the rest of the forecast period.
The full latest Monetary Report can be read here.
Government must do more for working parents
Chambers are concerned about the damage of schools being closed for any longer than necessary and that this will continue to take its toll on working parents, particularly mothers.
Hannah Essex, Co-Executive Director of the British Chambers of Commerce, wrote an article regarding this in The Times yesterday which you may find of interest to read and can be accessed here.