Post Type: FACT SHEETS Download PDF
The spread of Covid‑19 and the measures to contain it are having a significant impact on the UK and many countries around the world. Activity has fallen sharply since the
beginning of the year and unemployment has risen markedly, both domestically and globally.
The unprecedented situation means that the outlook for the economy is unusually uncertain. It will depend critically on the evolution of the pandemic and how governments, households, businesses and financial markets respond. Recognising these uncertainties, the MPC has constructed a plausible illustrative economic scenario based on a set of stylised assumptions. While the scenario is highly conditional, it helps to illustrate the potential impact of Covid‑19 on the economy and the channels through which that impact is felt.
Alongside a number of estimates of the sensitivity of the economy to a selection of key variables, it also serves to illustrate the important drivers of the outlook. The illustrative scenario incorporates a very sharp fall in UK GDP in 2020 H1 and a substantial increase in unemployment. The fall in activity should be temporary, and GDP should pick up relatively rapidly as social distancing measures are relaxed. Nonetheless, because a degree of precautionary behaviour by households and businesses is assumed to persist beyond that point, the economy takes some time to recover towards its previous path, with risks skewed to the downside. In the near term, CPI inflation is likely to fall significantly below the MPC’s 2% target, given falling energy prices and the weakness of demand. It rises to around the 2% target further out.
The MPC will continue to monitor the situation closely. Consistent with its remit, it stands ready to act to ensure price stability and support households and businesses in a way that
helps to minimise longer‑term damage to the economy
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