Output only crawling back

While the most restrictive period of the lockdown is behind us, the measures enforcing business closures and social distancing are only being eased very gradually. According to the ONS “Business Impact of Coronavirus Survey”, the number of businesses which have ceased trading has only fallen from 25% at the start of April to 18% in the first half of May So GDP is likely to only recover slightly in May and June from April’s nadir. Meanwhile, despite the policy measures put in place, many people and businesses have fallen through the cracks. And a second wave of unemployment will probably come once the reduction in the generosity of the job furlough scheme in August forces firms to decide if they want to keep their employees. As a result, we think the economic recovery will disappoint and that the Bank of England will have to loosen policy by considerably more than it already has over the next few years to stimulate demand and boost inflation back to its 2% target.