Prospects for the UK Economy
Publication date: 2 Nov 2020 | Publication type: National Institute Economic Review | Theme: Macroeconomics | Journal: National Institute Economic Review Issue 254 | Publisher: Cambridge University Press
- The economic contraction resulting from Covid-19 and resultant public health measures has been unprecedented. The public sector has acted as a shock absorber to protect households and businesses, temporarily raising government debt levels, but the recovery has been hampered by uncertainty, repeated changes in policy, and now by the resurgence of the virus.
- We argued in August for an extension of the Coronavirus Job Retention Scheme beyond its scheduled end date. The latest version of the Job Support Scheme achieves many of the same ends, despite its reduced generosity, and as a result our unemployment forecast for October–December has been revised down to 7.1 per cent. With more certainty at an earlier date, this could have been lower.
- The end of the Brexit transition period and the prospect of a No Deal Brexit represent significant threats to the UK’s economic recovery, whether in the middle of a ‘second wave’ or after the recovery is underway. The addition of this on top of Covid-19 is likely to broaden the shock to growth and employment in the first quarter of 2021, weakening the UK’s recovery compared with other countries, and reducing productivity in the long run.