Entering a harder phase of the recovery

Our Capital Economics BICS Indicator suggests that the rapid economic recovery has continued with some chunky gains in GDP in both July and August. (See Chart 1.) If so, then the economy may now be “only” 8% below its pre-crisis level and around 70% of the 25.6% peak-to-trough fall in GDP has been recouped in just four months. But it will take much longer to regain the remaining 30%. After all, the scope for big step changes is reduced now that most sectors have already reopened, the winding down of the furlough scheme is raising unemployment, and the potential for tax hikes and a no deal Brexit later this year is restraining investment. As such, the economic recovery is about to enter a harder and slower phase.