Recovery underway, but the biggest challenge awaits

The sharper-than-expected rebound in retail sales in May shows that the economy has turned the corner and embarked on the recovery leg at pace. However, the idea that the coronavirus will cause a very deep but ultimately swift and costless recession doesn’t hold water. Our view is that while the initial stages of the recovery will be swift, by the end of the year the damage to the labour market will weigh on demand causing the recovery to slow, inflation to remain low, and the Bank of England to announce further stimulus.