Will the coronavirus permanently change behaviours? - Capital Economics
UK Economics

Will the coronavirus permanently change behaviours?

UK Economics Focus
Written by Paul Dales
Cancel X

As long as social distancing isn’t practised for many years, then those behavioural changes triggered specifically by the coronavirus crisis will probably prove temporary. But those changes that were already underway and which have been supercharged by the crisis will probably be permanent. It just so happens that the temporary changes are the ones that are more likely to sap productivity, while the permanent ones are more likely to enhance it.

  • As long as social distancing isn’t practised for many years, then those behavioural changes triggered specifically by the coronavirus crisis will probably prove temporary. But those changes that were already underway and which have been supercharged by the crisis will probably be permanent. It just so happens that the temporary changes are the ones that are more likely to sap productivity, while the permanent ones are more likely to enhance it.
  • If social distancing were practised for many years, either because it was enforced by governments or fears of future waves of the virus prompted people to implement it anyway, then most of the recent changes to the way we spend, socialise and work will probably be in place for many years too. That includes the requirements to have fewer employees in the workplace at one time, fewer customers in pubs, restaurants, gyms and leisure centres, and a greater reluctance to travel overseas.
  • But if the virus and social distancing fade out, then most of the behavioural changes that require people to stay one or two metres apart will be reversed quickly. That’s partly because they have been forced on people and businesses, partly because the current substitutes aren’t adequate (Zoom drinks rather than pub drinks) and partly because there is a commercial incentive for businesses to cram more employees in an office or more customers in a restaurant.
  • Right now it may feel like that old world has disappeared forever. But the historical evidence suggests that after previous significant events, such as pandemics, plagues and terrorist attacks, people reverted to their previous behaviours often within three to six months.
  • For example, after the SARS pandemic in Asia and North America in 2002/03, the sharp declines in the number of international passenger arrivals, hotel occupancy rates and retail sales in Hong Kong were all reversed three months after their low points. Admittedly, after the 9/11 terrorist attacks in the US in 2001, it took two years for the number of US passenger flights to return to its previous peak. But it is still striking that they did return to the previous level even though the perceived risks of flying had changed forever.
  • And we know from “The Diary of Samuel Pepys” that after the Great Plague in London of 1665/66, Pepys returned to the office and the shops six months after the number of plague deaths peaked. In fact, despite the clear risk to his life he continued to go to the pub, albeit less frequently, while the plague was rampant!
  • The behavioural changes that are much more likely to be permanent are the ones that were already underway and have been accelerated by the coronavirus crisis. They include spending online, the reduction in the use of cash, the greater use of technology in the workplace and a shift towards working from home. These trends are likely to stick as, by and large, households and businesses want them to. After all, for many businesses such trends could cut costs, boost productivity and raise profitability.
  • The knock-on effects from more people working from home could be particularly significant. The demand for commercial property could fall, fewer business and commuter travel trips will be taken and there will be less need for amenities such as sandwich shops, dry cleaners and gyms in the city centres. There may also be a decrease in the demand for residential property in or near to big cities and an increase in the demand for residential property closer to regional hubs or in rural areas.
  • Obviously, this all depends on the evolution of the virus and how long social distancing measures are practised. But the coronavirus crisis is more likely to accelerate changes that were already underway rather than significantly change the way we work, rest and play.

Will the coronavirus permanently change behaviours?

The coronavirus crisis has the potential to trigger permanent changes. Some of those changes will influence the size of the economy. But in this Focus we concentrate on behavioural changes, although we highlight where these micro effects may end up having macro consequences.

Because the coronavirus crisis has touched all households and all businesses, it is not possible to address every single possible change. And when reaching conclusions about potential changes to behaviour, there is always going to be an element of speculation and judgement involved.

So we focus on the changes we deem most interesting or significant. And where possible, we cite evidence of how behaviours have changed since the coronavirus crisis began and use evidence from major historical events to establish how long those changes may last.

Obviously, much depends on the evolution of the virus and how fearful people are of future waves. As such, it is possible to envisage two very different scenarios:

  • A scenario of lingering social distancing – Either the virus is never fully brought under control and social distancing measures are enforced by governments for many years, or the fear of the virus or future viruses prompts social distancing to be practised anyway.
  • A scenario of temporary social distancing – The virus is brought under control, perhaps due to a vaccine, and people aren’t required to apply social distancing or simply don’t.

In the first scenario, most of the changes we discuss would last for many years (at least until herd immunity is achieved). For simplicity, we refer to these changes as “permanent” and assume they would last for about five years. In the second scenario, some of the changes would be temporary (perhaps a year or two), as they are only required while social distancing measures are in place or practised, and some changes would be permanent.

We start with a very brief look at the aggregate effects on the economy. The next two sections consider how spending and working habits could change in theory. The third section explores what we can learn from history. (Spoiler alert – it contains some fascinating charts on how often Samuel Pepys went to the office, shops, pubs and theatres during the 1665/66 Great Plague!) The fourth concludes by establishing which of the theoretical changes are likely to be temporary in practice and which are likely to be permanent.

Changes to aggregate spending habits

The realisation that pandemics are possible and that they can have severe financial consequences means that for some time beyond the crisis both households and businesses will probably want to maintain bigger cashflow buffers and savings than in the past.

Money holdings have already risen sharply, mainly due to the fact that households weren’t able to go out and spend during the coronavirus lockdowns. Indeed, in the two months to April, the amount of money held by UK households increased by £30.5bn. That was more than three times as much as the increase in the whole of 2019. (See Chart 1.)

Chart 1: UK Household M4 Money Holdings (Change, £bn per month)

Source: Refinitv

Once the economy has reopened in full, much of those savings will be spent as they were accumulated by force rather than by desire. But we think some of it will be retained as a buffer to protect against future threats to incomes.

So for any given level of income or profits, households will have less money to spend and firms will have less funds to invest. And of that smaller pool of funds to invest, businesses will probably devote a higher share to their business continuity plans, which leaves less money for other, arguably more productive, investments. A survey in March by the Association of Chartered Certified Accountants found that 45% of accountants said they either had no business continuity plan or one that proved ineffective during the coronavirus crisis. 56% of small firms were in that situation. (See Chart 2.)

Chart 2: UK ACCA COVID-19 Business Continuity Plans (%)

Source: ACCA

Possible changes to spending habits

Arguably more interesting than the amount of money spent is what households and businesses spend their money on, where they spend it and how they spend it. It goes without saying that both households and businesses will continue to spend more online. After all, that is the epitome of spending at a distance! As more shops reopen, some of the leap in the share of retail sales in the UK that took place online during the coronavirus lockdown in April and May will probably be reversed. (See Chart 3.)

But as some new habits have probably been formed, such as older people becoming more familiar with online shopping, online sales will probably continue to make up a higher share of retail sales than before.

Chart 3: UK Online Sales (As a % of Retail Sales)

Source: Refinitv

On top of that, the coronavirus crisis may have changed what people deem important. People may want to spend more time with family and friends. Or they may be more inclined to spend more money in smaller shops in their local communities rather than in big shops in large shopping centres.

The biggest changes could relate to spending on socialising and leisure as those are the areas that social distancing influences the most. The winners could be anything that can support socialising at a distance, including video chats, messaging services and venues that have large outdoor spaces, such as pubs with big beer gardens.

Group leisure activities that can be done online (quizzes, murder mystery events etc.) and outdoors (walking, cycling, golf etc.) may also remain popular. The same is true for leisure activities within the home (baking, watching TV etc.). Since the lockdown, we have all watched much more TV than usual – both online and offline. (See Chart 4.)

Chart 4: UK No. of Hours of TV Watched Per Week

Source: Barb

And when it comes to leisure travel, there may be a greater compulsion not to do as much as before. That would reduce demand for travel (trains, planes and cars) and accommodation of all types. That said, holidays closer to home (domestic) may become more attractive relative to anything further afield (overseas). Indeed, it is possible that the impact on international travel will be very big, partly because of the risk of catching the virus, partly because of the extra hassle of health checks at borders and especially if some countries still require people to go into quarantine for 14 days on arrival.

Other obvious losers are those activities that require being close to other people or the enjoyment of which depends on an atmosphere. This list is a long one and includes cafes, pubs, restaurants, leisure centres, gyms, shopping malls and nightclubs.

A lot of the possible changes discussed so far just highlight the trends that have been forced upon people by the lockdowns to contain the coronavirus. More important is whether or not they stick.

A survey by McKinsey & Company in April suggested some of them could. It found that after the coronavirus has passed households intend to undertake fewer trips to the shops, fewer domestic travel trips and plan to stay away from shopping malls. The intended changes are bigger for those countries where the coronavirus has been more rampant, such as the UK and Spain. (See Chart 5.)

Chart 5: Expected Behaviour Post-Covid-19, April 2020 (% Net Balance)

Source: McKinsey & Company

As for how we spend our money, the coronavirus has made people more wary of exchanging notes and coins that have been handled by others. Fewer payments are being made in cash and more are being made electronically. That’s highlighted by the 60% plunge in the volume of banknotes being withdrawn from UK cash machines in April. (See Chart 6.)

Chart 6: Withdrawals from UK ATMs (Millions, NSA)

Source: LINK

Most of that decline is a result of the lockdown that meant people spent less money in any form. But given that some businesses have now spent the time and money to set up ways to operate and receive payments digitally, many of them will continue to accept card payments only.

Possible changes to working habits

So in theory, there are lots of ways in which the coronavirus could change people’s spending habits. Arguably, the potential changes to working habits could be even more significant.

It is possible that the coronavirus will prompt many people to reassess what is most important in their lives and there could be a shift in the amount of work people do. Rather than working five days a week, a greater share of employees may work four days a week or do five days’ work in four. That could reduce the total amount of work done.

A greater willingness to use technology in the workplace could also change the way people work. Meeting and greeting in person is out, and video conferencing and showing off your extensive book collection in your home office is in.

If and when most physical workplaces reopen, online meetings could significantly reduce business travel, both for short and long trips. Why spend time on a crowded tube or in a taxi crawling across London for that business meeting when you can just open Zoom and talk instantly? Long business meetings over three courses in a packed restaurant may be less appealing too. And longer trips to visit regional or overseas offices now carry greater health risks and fewer upsides. That means hotels, trains and planes face the threat of a reduction in the demand for both business and leisure travel.

Working habits – commercial property

One of the biggest questions is how much space do businesses now need? On the one hand, the requirement to socially distance while working means that if all businesses are going to host the same number of employees as before the crisis, then they will need more space. Hot desking doesn’t solve this issue either as sharing desks, keyboards and seats increases the risk of infection. This new need for more space at work applies to all sectors, including factories, construction workers, shops and offices.

This would be particularly significant if governments insist that employees need to be 2m apart rather than 1.5m or 1m apart. And the effects are not linear either. For example, one British pub said if they had to keep staff and customers 2m apart that would reduce their capacity by 75%, while a 1m rule would reduce it by 25%.

In theory, this could bring an end to the long-term decline in the workspace per employee seen over the past 10-20 years. That fall was due to walls being knocked down to create open plan offices and hot desking allowing fewer employees to be in a building at any one time. (See Chart 7.)

Chart 7: Office Space Per Employee (Square metres)

Source: Eurostat, REIS, Refinitiv, Capital Economics

Walls and screens may now have to go back up. It’s possible that offices will soon be full of those little cubicles Josh Baskin (Tom Hanks) found himself working in during the 1988 film “Big”.

That said, the coronavirus crisis has forced working from home on many employees and employers, so if a higher share continue to do this more regularly then less space may be required per employee.

Obviously, some work requires a physical presence on site, such as construction. And making large bits of industrial machinery can’t easily be done in your bedroom. But technological developments over the past 20 years have reduced the need for all staff to be located in a central building. That’s especially the case for those whose output is essentially digitizable. And many businesses have been staggered at how effective and successful working from home has been during the coronavirus lockdown.

Indeed, many employees want to work from home more often after the crisis. A survey of finance workers in London by Deloitte in May found that 70% said working from home was a positive experience, three-quarters said they wanted to continue doing it for at least one day a week, and over 40% said they wanted to do it for two days.

Of course, working from home was gradually becoming more common anyway. Although the share of EU employees “usually” working from home has been fairly flat at 5% over the past decade, the share “sometimes” working from home has risen from 8% in 2008 to 11% in 2019. (See Chart 8.)

Chart 8: EU-28 Working From Home (% Employees)

Source: Eurostat

Taking it one step further, if a business is happy for its employees not to gather in an office, then it might not be long before they decide they don’t need to hire employees who live near their office. That means a lot of work done remotely could be done by workers sitting in low-wage countries.

And the step after that is to consider if you need workers at all. If the coronavirus crisis forces some businesses to use technology more, then it may bring them closer to replacing some of their employees with robots or Artificial Intelligence (AI). After all, robots don’t need to socially distance!

So does the coronavirus crisis mark the death of the office? Some companies, perhaps very small ones, may be able to run without a physical workplace. But a lot of companies, particularly bigger ones, will still need some physical glue to hold them together, to enhance communication and to create or maintain a corporate culture. And if some employees are working from home for one, two or three days a week, unless strict rotas are put in place they will still need some space at work for the other days.

Even robots would need to be kept somewhere! And there are lots of tasks robots can’t do as well as humans, particularly those requiring judgement, creativity, ethics and the comprehension of complex interactions among teams of humans. So a greater use of robots may just shift employees into different tasks rather than make them redundant.

But even those companies that will still want a physical headquarters may view the coronavirus crisis as an opportunity to cut their rental costs. Instead of having a big building that can host the majority of their employees at one time, some companies may downsize, encourage employees to work from home and use external meeting rooms (in hotels for example) or social events (meals or away days) to build and maintain the corporate culture.

For lots of businesses, then, the desire to cut costs may more than offset the effect of the requirement to socially distance at work and result in a net reduction in the demand for commercial property.

Two factors may influence the extent of this reduction across countries and cities. First, larger and densely populated cities that contain a high share of office-type jobs, such as London, New York, Tokyo and Paris, are most ripe for a further shift to working from home. As office space in those cities also tends to be the most expensive, the cost benefits are more attractive too.

Second, differences in cultures and the structures of economies are important. In 2019 there was a very wide range in the shares of employees “sometimes” working from home in the EU, from 31% in Sweden, 24% in Iceland and 23% in the Netherlands to just 4% in Spain, 3% in Greece and 1% in Italy. (See Chart 9.) Those differences are partly due to culture and partly due to the make up of the economy. For example, Italy’s large tourism sector means there are fewer opportunities to work from home (think making a margherita and serving a glass of Chianti).

Chart 9: “Sometimes” Working From Home, 2019 (% of Employees)

Source: Eurostat

A shift to working from home would be another blow for the travel sector, as fewer people would be commuting as often. Also, those businesses in city centres that support workers would be hit, such as sandwich shops, pubs, cafes, gyms and dry cleaners.

There could be some big changes within the commercial property sector too. If employees don’t want to commute on public transport to big urban cities, some offices may relocate to smaller regional cities or to office parks on the outskirts of cities that can be reached by car more easily.

And a further shift in spending online will probably be something of a boon for industrial sites as more warehouses and logistics facilities will be required. In order to deliver products brought online quicker, demand for industrial sites in or close to big cities may rise.

A further shift towards spending online will continue to weigh on retail commercial property too. High-end retail sites, such as Westfield shopping centres, may be a bit more immune than chain stores on the high street. “Neighbourhood” or “convenience” shopping malls that are popular in North America, which house amenities such as doctors, dentists and supermarkets, are probably not as exposed either. But footfall in both could still be reduced by social distancing measures.

None of this can happen overnight, though. Many businesses will be locked into long term leases on their workplaces that would be costly to break early. And long construction lead times mean that the quantity and type of commercial property space can’t change quickly.

Working habits – residential property

These possible changes in working habits could have some major knock-on effects on the residential property market. If people are at work less, then they are at home more. That could mean the demand for housing in certain locations and with certain characteristics could change.

Housing in, near, or very close to big cities may become less attractive, while housing near to smaller regional cities and in more rural areas may become more appealing. If people are spending less time in the big cities and/or less time travelling to them, then they will probably be less willing to pay for the more expensive housing in or near them. Social distancing makes the city attractions of pubs, restaurants and theatres less appealing too.

Indeed, Zoopla reported that in the first week after the UK government reopened the housing market in mid-May, buyer demand shot up in smaller cities like Portsmouth, Southampton and Newcastle relative to before the coronavirus lockdown and fell in bigger cities like Birmingham and London. (See Chart 10.)

Chart 10: Change in UK Housing Buyer Demand (Week After Market Reopened Versus Feb 2020, %)

Source: Zoopla

At the same time, more people may want bigger houses and/or bigger plots to accommodate one or two home offices. Demand for gardens may also be higher in case people have to stay at home during another lockdown.

This doesn’t mean that no one will want to live in the city at all! In fact, if the demand for commercial property space in cities declines, then this space could be given over to residential property. That could go some way to solving the shortage of housing in many countries.

Much depends on the extent and quality of the amenities in rural areas. Families aren’t going to move to an area where they don’t deem the quality of the schools good enough. So demand may be particularly strong for those rural areas with good schools. And over time, if more people are closer to regional towns or in rural areas, then the amenities in those areas may expand. The sandwich shops, cafes and gyms could essentially shift from the big cities to smaller cities or towns.

The end result could be something similar to the vision of the Mayor of Paris, Anne Hidalgo, who wants residents to have all their needs met – be they for work, shopping, health, or culture – within 15 minutes of their own doorstep.

All these shifts in demand and supply would trigger a price adjustment. House prices in rural areas, such as the UK’s South West, could rise relative to prices in urban areas, such as London. That would go some way to reversing the trend over the past 10 years. (See Chart 11.)

Chart 11: UK Nationwide House Prices (2000=100)

Source: Refinitiv

Lessons from history

We noted right at the start that whether or not these changes prove to be temporary or permanent mostly depends on the evolution of the virus and how long social distancing is required or practised. But it also depends on the willingness of households to get back to “normal”. We can get a handle on the latter by looking at people’s behaviour after previous significant events, such as pandemics, terrorist attacks and plagues.

SARS pandemic

The SARS pandemic was shorter, more confined and less lethal than the coronavirus pandemic. It lasted from November 2002 to July 2003, was largely restricted to small parts of Asia and North America and led to around 9,000 deaths in total.

Activity in sectors exposed to travel and socialising slumped in those countries affected by SARS. For example, the number of international passengers entering Hong Kong fell by 70% from February 2003 to May 2003. The hotel occupancy rate in Hong Kong plummeted from 89% in December 2002 to 17% in May 2003. And retail sales in Hong Kong fell by 13% between January 2003 and April 2003.

But there was no clear long-term influence on economic behaviour, mainly because the pandemic was so short and was contained quickly. Indeed, by August, just three months after the low point, the number of international passenger arrivals into Hong Kong rebounded to the level seen before the pandemic. (See Chart 12.) Both occupancy rates and retail sales had risen back to their previous highs by August too. (See Chart 13.)

Chart 12: Hong Kong International Passenger Arrivals (000s, Seasonally Adjusted)

Sources: Refinitiv, Capital Economics

Chart 13: Hong Kong Retail Sales & Hotel Occupancy

Sources: Refinitiv, Capital Economics

The impact on public health was bigger. Wearing masks in public became more socially acceptable and governments invested a lot more time and money into preparing for pandemics. That goes someway to explaining why the countries that were hit by SARS have done a better job of containing the coronavirus outbreak.

Terrorist attacks

Terrorists attacks are not the same as pandemics, but they have similar characteristics in that they are often a shock, involve the loss of life and/or the risk of loss of life, and can linger in the mind for a long time.

The terrorist attacks in London on 7th July 2005, which targeted commuters on buses and tubes during the morning rush hour, killed 52 people and injured 700. The blue line on Chart 14 shows in the month after the attacks, the number of passengers travelling on the London Underground fell by 15%. But that decline was reversed in the following two months and tube usage returned to normal thereafter.

Chart 14: Passenger Trips on London Underground (Millions Per Month, Non-Seasonally Adjusted)

Source: Transport for London

After the 9/11 terrorist attacks in the US in 2001, which killed 2,977 people and caused over 25,000 injuries, the number of passengers travelling on domestic and international US flights fell by 32%. And it took two years for flights to return to the level seen before the attacks. (See Chart 15.) But even that seems quite quick given that these attacks forever changed the perceived risks involved with flying.

Chart 15: US Passenger Trips on Flights (Millions Per Month, Seasonally Adjusted)

Source: US Bureau of Transportation

The Black Death

Unfortunately, the lack of reliable data means it is hard to judge how previous pandemics, such as the 1968 flu outbreak and the Spanish flu of 1918/19, have influenced behaviour. But some published works provide some insight into the changes in behaviours after the Black Death, which peaked in Europe between 1347 and 1351, and the Great Plague of London in 1665/66.

It is thought that the Black Death wiped out around 50% of the population in Europe. In an article about his book on the Black Death, “The Scourging Angel”, Ben Gummer notes that in 1349 the UK “economy rapidly collapsed, workers who were not dead stayed at home for fear of infection, crops rotted in the fields and those willing to work would only do so at an extortionate price”.

He goes on to say that lockdowns became common, with Gloucester, which was near to the first urban hotspot of Bristol, closing its city gates. When the disease reached Milan, Gummer says that “the authorities closed the gates and bricked the sick up in their own homes”.

But Gummer also highlights that society began rebuilding fairly quickly. He says that “huge swathes of land, through inheritance and forced sales, changed hands. People lost their families, but gained a legacy”. And widowed men and women hastily remarried, “desperate to maintain the security that marriage then ensured”.

He admits that the quotation “Millions dead: things go on as before” hardly entices people to read his work. But he concludes that “by and large, the great arc of history was unbent by the Great Death”.

The Great Plague

“The Diary of Samuel Pepys” provides a much more detailed insight into the precise behavioural changes of its author during the Great Plague of 1665/66.

Pepys was acutely aware of the plague, which was the last major epidemic of the bubonic plagues in England and killed 100,000 of the population of the City of London in the 12 months from April 1665. As that was equivalent to a quarter of the population of London, it was far worse than today’s coronavirus.

He first mentioned the plague in his diary on 30th April 1665 when he noted “Great fears of the sickenesse [sic] here in the City, it being said that two or three houses are already shut up. God preserve us all!”. In that quote Pepys was referring to the rule that the house of anyone with the plague was shut for 40 days with the family inside, marked with a cross and guarded by watchmen.

Over the following months Pepys religiously followed the number of deaths, which was published once a week in the “Bill of Mortality”, and he rewrote his will twice! In his role as Treasurer of the Navy Board he recommended that during the worst of the plague the office be moved temporarily from Seething Lane near the Tower of London to Greenwich. Although he temporarily rented a place in Greenwich too, he regularly moved between there and his home also in Seething Lane and visited other parts of London while the plague was rampant.

In total, there are 133 direct references to the “plague” in his diaries. The references peaked in the same month that the number of new deaths in London peaked (September 1665) and appear in the diary regularly over the five months after the number of deaths had faded away. (See Chart 16.)

Chart 16: Great Plague Deaths & Monthly “Plague” References in Pepys’ Diaries

Sources: The Diary of Samuel Pepys, University of California, CE

The number of references to certain places and activities in his diaries provides a guide to what parts of his life Pepys put on hold during the plague and for how long.

The black line on Chart 17 shows the number of deaths in London, but this time the left-hand vertical axis has been inverted so that a rise in deaths is shown by a downward movement on the chart. The blue line shows the number of references in Pepys’ diaries to his office at the Navy Board each month. And the dashed blue line shows the average monthly number of references to his office in the 18 months before the plague hit. We have set the scales on the vertical axes so that the average number of references broadly lines up with zero deaths from the plague, as that should represent the norm. The chart supports other evidence that, mostly because the Navy Board office was moved when the plague was at its worst, Pepys did not go to the office in Seethling Lane in the second half of 1665.

But he did return four months after the death count was at its highest in September 1665 and once there were hardly any new deaths at the start of 1666. He noted on 9th January 1666 “Up, and then to the office, where we met first since the plague, which God preserve us in!”. And the return of the number of references to the office almost to the pre-plague average in the following months suggests that his working habits didn’t change much. (See Chart 17.)

Chart 17: Great Plague Deaths & Monthly References to the Office in Pepys’ Diaries

Sources: The Diary of Samuel Pepys, University of California, CE

The evidence is a bit more mixed when it comes to his spending and socialising habits. But on the whole, it suggests there weren’t any permanent changes here either.

His diaries document how commercial activity declined during the plague. On 22nd July, Pepys said “the streets [were] mighty thin of people.” And two months later, when deaths were peaking, the number of references in his diaries to the “Royal Exchange” plunged. That suggested Pepys’, who did enjoy shopping for suits and wigs, was hardly visiting that prominent shopping area.

But by the time the plague was petering out towards the end of the year, on 13th December Pepys noted that “the town do thicken so much with people”. On 31st December, he wrote that “the town fills apace, and shops begin to be open again”. And at the same time, the number of references to the Royal Exchange rose back to the pre-plague level. (See Chart 18.)

Admittedly, Pepys’ referred to the Royal Exchange much less in 1666 and in 1667. But that appears to be partly because he started shopping elsewhere and partly because the Royal Exchange was destroyed in the Great Fire of London in September 1666. So we don’t think this is conclusive evidence that the plague permanently reduced his desire to spend.

Chart 18: Great Plague Deaths & Monthly “Royal Exchange” References in Pepys’ Diaries

Sources: The Diary of Samuel Pepys, University of California, CE

If that was the case, then surely he would have gone to the pub less. But in fact, he continued to visit London’s taverns during the worst of the plague, albeit less often, despite the risks. The number of times he referred to a tavern fell from an average of 4 times a month before the plague to just once in October 1665. But it bounced back to 4 times a month in November 1665, to 8 times in December 1665 and remained well above the pre-plague average for the next 18 months. (See Chart 19.)

Chart 19: Great Plague Deaths & Monthly References to Taverns in Pepys’ Diaries

Sources: The Diary of Samuel Pepys, University of California, CE

On 16th February 1666, Pepys noted when he went to a coffee house that it was “very full, and company it seems hath been there all the plague time”. So it appears as though some pubs and cafes stayed opened during the plague and they were busy six months or so after the number of deaths peaked. In fact, Pepys suggested they were so packed that it seemed as though the plague never really existed.

It is true that Pepys didn’t go to the theatre for 18 months between May 1665 and October 1666. Judging by his other actions, though, that’s probably got more to do with the theatres being closed until October 1666 rather than because he didn’t want to. Indeed, he returned as soon as they reopened. His even more frequent attendance in 1667 could suggest that he then made up for lost time. (See Chart 20.) But that’s probably got more to do with his rapid rise in wealth during this period.

Chart 20: Great Plague Deaths & Monthly References to Theatres in Pepys’ Diaries

Sources: The Diary of Samuel Pepys, University of California, CE

Of course, it is possible that Pepys’ behaviour was different to that of the public. And it does appear as though his attitude to the plague was rather cavalier. Although it seemed to worry him, it didn’t stop him taking what appeared to be big risks with his own life. But if we can glean anything from Pepys’ diaries it is that he and other Londoners returned to their work, shops and socialising about six months after the numbers of deaths had peaked and about one month after the numbers of deaths had petered out.

And when taken together with the observations after the Black Death, SARS and the UK and US terrorist attacks in the 2000s, the main message is that people tend to revert to their previous behaviours quickly. Often, things are back to normal after about six months.

What’s temporary, what’s permanent?

In the first possible scenario in which the virus lingers and social distancing occurs for many years, then all of the changes we have discussed in theory could be permanent in practice. In other words, the coronavirus would permanently change spending and working habits.

But things would probably be very different in the second scenario in which either the virus is controlled and/or socially distancing is eradicated or ignored after a year or so. We aren’t epidemiologists, but this feels like the more likely scenario and it is the one that our economic forecasts are based on.

In this scenario, those changes that specifically relate to the virus itself and/or to social distancing are likely to be temporary. That would include fewer employees in the workplace at one time, fewer people using public transport at one time, fewer customers in pubs, restaurants, gyms and leisure centres at one time and a greater reluctance to travel for leisure. Once social distancing measures are removed or no longer followed, we suspect that people would revert to their previous behaviour in these areas.

That’s partly because the desire to socialise is strong. But it is also partly because online replacements for lots of these activities are poor substitutes. For example, having a beer or a glass of wine while sitting at home chatting to friends on Zoom is better than nothing. But for many, once the pub opens and people don’t need to worry about how far they sit from each other, the desire to go out and see, touch and hug your friends will be irresistible.

Similarly, we could all just holiday in our own country every year and get our cultural fix by watching repeats of Michael Palin wander around Italy. But you can’t replicate the climate, culture, sounds and feel of Italy with a holiday in the UK. So leisure travel will probably return.

Some of these activities will probably return as soon as social distancing measures are removed, like going to the pub. And some may take a little while longer to pick up, such as overseas holidays. But it seems likely that in these areas, things would be back to normal something like six months after social distancing measures end.

Instead, the changes that are most likely to be permanent are those that were already underway but have been accelerated by the coronavirus crisis. Many of those relate to the use of technology in the workplace. Table 1 summaries which changes in the scenario where social distancing is temporary are more likely to be short-lived and which ones are more likely to be permanent.

Take business travel, for example. In contrast to leisure travel, technology offers a more acceptable substitute. Of course, face-to-face business meetings will never die out completely, especially with new customers or new clients. New business relationships require trust and that is far easier to form face-to-face rather than screen-to-screen. But existing relationships can be adequately maintained via video conferencing. So while people will probably still travel to seal that business deal, manage that tricky situation and/or celebrate successes, other more routine business meetings will probably continue to take place online.

That may seem to jar with our belief that people will still want to socialise in person and travel for leisure. But the difference is that the coronavirus crisis hasn’t changed human nature or capitalism. Humans have an inherent need to interact with each other and explore their surroundings. Meanwhile, businesses are constantly seeking to cut costs, and the coronavirus crisis has proved that can be done by reducing business travel.

Similarly, the shift in online spending and the use of electronic payments has been underway for a decade. The coronavirus has simply supercharged these trends and brought them forward.

Finally, the shift to working from home will probably continue, with all the knock-on effects discussed earlier including a decline and/or displacement in the demand for commercial property and an increase in the demand for bigger houses in more rural areas. Again, this is because employees and employers have been moving towards working from home for a long time and the coronavirus has made it more widespread. The same is probably true of the use of robots and AI.

If all these permanent changes were always going to happen anyway, why weren’t they more prevalent before the coronavirus crisis? The capability has been there for a long time. Over the past 10 years many new technologies have been developed that people either didn’t know about (confession: I hadn’t heard of Zoom or Microsoft Teams before the crisis) or were unwilling to engage with, perhaps due to inertia or a lack of collective action. But the coronavirus crisis has forced people to become aware and has meant these technologies have been adapted by everyone rather than a few forward-thinking mavericks.

So there was a backlog of technological improvements that were always going to be more widely embraced at some point. The coronavirus crisis has just reduced the normal time lag for their widespread implementation.

Table 1: Behavioural Changes in Temporary Social Distancing Scenario



Social/spending habits:

Social/spending habits:

Less spending on consumer goods and services

Rise in online spending/decline in bricks and mortar retail spending

Increase in spending in local communities

Reduction in the use of cash

Socialise online rather than in pubs and restaurants

Shift in demand for residential property away from cities

Increase in leisure activities at home

Less leisure travel and overseas holidays

Working habits:

Working habits:

Work less and play more

Less business travel

Fewer employees/customers in the workplace

More working from home

Relocation to office parks outside cities

Lower demand for commercial property

Shift in amenities (sandwich shops) from cities to regional towns

Greater use of technology/robots/AI in the workplace

Source: Capital Economics

The costs and legacy of these changes

Another way to think about it is that the changes that are more likely to be temporary are the ones that households and businesses don’t want to be permanent. For example, people want to socialise and go on holiday. And businesses don’t want to run with 30% capacity and 100% of their fixed costs.

But people do want the flexibility of being able to work from home and businesses want to reduce travel, and incorporate technology to cut costs, boost productivity and raise profits. So there is a clear commercial desire for those trends that were underway anyway to continue, precisely because they do enhance productivity.

In other words, the changes that are more likely to be temporary are the ones that reduce productivity and the changes that are more likely to be permanent are the ones that boost it. This supports the idea that the coronavirus may not significantly reduce the economy’s potential rate of growth. In some ways, it could even boost it.


Overall, if social distancing is something that is going to be practised for many years, then people and businesses will have little choice but to change their behaviour permanently. But if social distancing measures are no longer required or are ignored, then the changes that are more likely to be permanent are likely to be the ones that boost productivity.

This is a result of two facts of life. First, humans need to interact and socialise physically. Second, profit-seeking businesses will do all they can to raise productivity, reduce costs and increase profits. Those two facts will probably apply just as much in the two, five and ten years after the coronavirus crisis as they did in the two, five and ten years before the coronavirus crisis.

Paul Dales, Chief UK Economist, +44 7939 609 818, paul.dales@capitaleconomics.com