Angus Armstrong's picture
Affiliation: 
National Institute of Economic and Social Research
Credentials: 
Director of Macroeconomic Research
Visiting Professor, Imperial College London

Voting history

Should We Worry About Post-Covid Inflation?

Question 2: Which of the following will be the greatest inflationary (or deflationary) force facing the UK economy?

Answer:
Global factors
Confidence level:
Very confident
Comment:
Since we advance by learning, any set back to integrated national economic systems will surely be temporary. The UK is a very open economy in trade, capital, humans, ideas. It has had very limited control over pricing power or market interest rates for at least two decades. I expect global factors to continue to dominate.

 Question 1: Which of the following scenarios is most likely to hold on average for most of the upcoming decade?

Answer:
No opinion
Confidence level:
Extremely confident
Comment:
I do not know what will happen over the next decade - hence I have answered no opinion with extreme confidence. I would be surprised if anyone really thinks they do know what will happen with any strong conviction. However, based on the background notes in the text I would add the following. First, the rise in deposits is simply the result of the sudden stop in spending due to lockdowns. Second, what really matters is whether the increase in deposits is accompanied by higher lending. In fact, we see the opposite. The ratio of loans to deposits has collapsed. Yes, it will rebound once lockdown is lifted, but I do not see why it will rise further as this would imply more leverage. Therefore, I think the risk is that inflation will be below target and until the Bank of England changes its policies then I don't see why deflationary pressures will persist. On a third and final point, I am sympathetic to the longer term global challenges and I think these are far more important than domestic policy changes.

Lockdowns and UK Economic Performance

Question 3: Using not only the policy tools that have been part of the UK policy mix thus far but also policy tools implemented in other countries, to what extent does the government face a tradeoff between saving lives and preserving livelihoods? 

Answer:
No tradeoff at all
Confidence level:
Very confident
Comment:
Citizens have to feel safe to interact for the economy to recover. This means keeping R at or below 1 on an ongoing basis. Lockdowns are necessary because other measures to limit interaction have failed (like test track and isolate). So I see health and economic activity as complements not substitutes. All this said, many of the policies could have been much more imaginative e.g. tailored for those and places most likely to suffer.

Question 2: How much will the new lockdown measures introduced on Thursday November 5 hurt UK economic activity this year relative to a counterfactual with the milder measures adopted over the summer?

Answer:
The economy will benefit from lockdown
Confidence level:
Very confident
Comment:
The economy will contract in Q4 by 4 to 6% but, IF well managed thereafter, the R rate can be kept 1 or below while the vaccination programme is deployed. If there was no lockdown and R at 1.5 or above this would greatly complicated delivering the vaccination programme. it is only when citizens FEEL safe will the economy really recover.

Question 1: How much of the decline in GDP experienced to date would have been avoided in the absence of any lockdown measures or other policy interventions (such as fiscal support)?

Answer:
GDP would have been lower absent lockdowns
Confidence level:
Very confident
Comment:
While there would have been voluntary lockdowns (a lot of activities had already closed) without the official lockdown, the reproduction and infection rate would be higher and hence later voluntary interruption to economic activity even greater. Without policy interventions (especially the CJRS) unemployment would have been much higher judging by the 9.6 million furloughed jobs since the crisis, meaning much weaker income and spending possibly leading to a secondary financial problem. The Treasury deserve real credit for acting fast and on scale once the emergency was recognised.

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