For those in search of optimism, a statement from Andrew Bailey, Bank of England governor last week provided brief respite. With more than 10 million people vaccinated so far, the bank predicts that a “rapid” Covid recovery is likely in the second half of this year.
 
Britain’s economy is expected to suffer a four percent decline in the current quarter as the third lockdown bites. However, a double-dip recession will be avoided after a smaller hit in the autumn than feared. Current restrictions will be lifted gradually from April and largely gone by autumn, the Bank forecasts, helping output to recover towards pre-pandemic levels by early 2022.
 
But let’s not get ahead of ourselves. There is still the long-term problem of national productivity we have to contend with – the ultimate source of rising prosperity – as David Smith, economics editor of The Sunday Times points out. In the years following the financial crisis of 2007-08, productivity and real wages stagnated while employment rose considerably. In early 2020, it was revealed the slowdown in Britain’s productivity growth over the last decade was at its worst since the start of the Industrial Revolution.
 
Actual growth figures, he argues, will be largely distorted over the next few years. Even if we do see strong quarterly and growth figures come spring, all they will signal is the economy merely getting back on its feet after the pandemic. But nothing will have happened to raise the trend growth rate. Productivity figures will similarly come across as misleading, with little to suggest a change in the underlying inclination.
 
The good news? In aiding the UK’s transition towards a post-Brexit economy, the government is well aware of the need for increased productivity-boosting policies. Indeed, we have seen hints of it already, in the £3 billion green recovery plan unveiled in July 2020 and in the £2.9 billion Restart scheme designed to boost employment. But with a ballooning deficit and the chancellor now facing mounting pressure for extended financial support in the lead up to the spring UK budget, difficult decisions will have to be made in choosing between allocating funds for immediate life support vs. long-term economic growth.