The large share of consumer-facing services in the UK economy, combined with a deeper and longer lockdown than most other developed economies meant that the UK was always going to be hit harder than some other countries. But the larger fall in GDP in the UK means it has the deepest hole to climb out of. What’s more, a second wave of unemployment, now that the furlough scheme is being unwound, more localised lockdowns due to an uptick in virus cases and the additional uncertainty caused by Brexit will probably mean that the UK is slower to climb out of its hole than other countries. As a result, we think that the Bank of England will have to do considerably more QE than it already has to stimulate demand and boost inflation back to its 2% target.
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