Date: 26 January 2022

Economist Dr Sentance is a former external member of the Monetary Policy Committee of the Bank of England. He has also been senior economic advisor at PwC and is currently senior adviser at economics consultancy, Cambridge Econometrics.
The impact of the Covid-19 pandemic
Statisticians calculate that GDP in the UK fell by 10% last year. To give context, Dr Sentance said there hadn’t been such a big drop since the 1920s, though the decline then was worse as it lasted three years. He added that given the extent of the fall, it was surprising the aftermath had not been more negative – but this was partly due to measures taken during the pandemic.
Since the most recent lockdown was eased, we are just 0.8% below where we started before the pandemic. So, it’s quite a good recovery, but we have not gone back to where we might have been without the pandemic, when we would have seen 1% to 2% economic growth.”
Lockdowns had created most of the business and economic problems, with the March 2020 lockdown prompting the most dramatic fall in UK output followed by a significant bounce-back in the summer as restrictions were eased. It fell again with next lockdown but impacts became less severe with each lockdown, as measures became less draconian and people adjusted behaviour, such as turning to online shopping.
Sectors affected differently
Drilling down, sectors have been affected differently. Unsurprisingly health and social work experienced output growth. But, to a much smaller extent, so did hospitality, public administration, retail and wholesale and information and communication.
Sectors that saw negative output were admin/support, transport/storage, education, manufacturing, professional/scientific, construction, arts/entertainment and finance and insurance.
Brexit
The UK economy is about 5% or 6% below where economists in the 2010s expected it to be. This has been caused by Brexit as well as the pandemic.
“Most people in business and economics would say the impact of Brexit on the economy has not been positive. It’s disrupted trade arrangements, movement of labour, caused migrant workers to go back to their home countries; it has disrupted investments patterns, as businesses have been reassessed.
“While there are potentially positives with new trade agreements…that potential is going to take quite a time to realise, if it comes through at all.”
Dr Sentance added the recent trade deal with New Zealand, “a small country on the other side of the world”, would make little difference.
Global economy
Similar to the UK experience, global GPD experienced a sharp fall in 2020, dropping nearly 2% lower than in the 2008 financial crisis, then rising quickly before dipping again though to a much lesser extent.
Growth was expected to be quite strong in 2021/22, though it would not take us to pre-pandemic forecast levels, Dr Sentance said. Inflationary pressures would pick up this year and next.
GDP growth figures showed that the UK had been hit harder than the US and Euro area, but with a slightly stronger recovery forecast in 2021.
He added: “There’s not a massive difference in what’s happening in the major economies. But some of poorer economies are going to struggle much harder to recover. They don’t have the infrastructure and resources, access to the vaccines that helped us bounce back.”
Slow decade
The 2020s are not going to be a good decade for growth in the UK, with forecasts at 1.5%. According to Bank of England GDP growth figures, this will be among the slowest since the 1820s.
“One reason is the big economic shock of the pandemic, but even before that, we were seeing a significant slow-down in growth and productivity across Western economies. Economists haven’t properly explained that and certainly don’t have a solution for it.”
Negative Impact
The negative legacy of the coronavirus pandemic globally would likely be as follows:
- “Scarring” of economy due to business closures, increased debt and employment disruption
- Level of economic activity not returning to previous trends in many countries
- Some health-related restrictions and uncertainty likely to persist and act as a drag on growth
- Increased levels of public borrowing
- Inflation threat from injection of large monetary and fiscal stimulus due to crisis measures
Dr Sentance referenced a recent CBI manufacturing survey which found we are now experiencing the greatest shortages of both skilled and ordinary labour plus materials since the mid 1970s.
Potential for positive impact
The pandemic might have the following positive influence:
- Increasing interest in and policy support for the “green agenda”, with home or hybrid working seen as a long-term option and role of the office changing.
- More business taking place online
- Increasing awareness of impact of health and wellbeing on the economy, with more emphasis on “soft” capital investment, for example in health education.
- A reshaping of the services economy, particularly affecting hospitality and travel; the need for frequent international travel has come into question.