BoE MPC member Gertjan Vlieghe said in the annual report to Treasury Select Committee of Parliament, from different pandemic experiences, it’s “not just the economic lockdown that suppresses economic activity”. There’s also a “large behavioural response of households and firms to the prevalence of the virus, which suppresses demand for certain types of economic activity even without any lockdown measures in place.” Thus, “easing lockdown measures is not sufficient to bring back economic activity.”
He also warned, “the longer the virus remains prevalent enough to affect patterns of consumption, investment and employment, the higher the likelihood that some sectors will not be able to return to their previous level of activity”. That would “imply that demand in other sectors needs to rise sufficiently to use up the resulting spare capacity in the labour force and in other inputs”. Such “reorientation of the economy towards a difference sectorial composition” is likely to be a slow process.
“Based on these considerations, there is a material risk in my view that it could take several years for the economy to return to full capacity and inflation to return sustainably to target, even with monetary policy at its current settings.”
