Thorsten Beck's picture
Affiliation: 
Cass Business School
Credentials: 
Professor of Banking and Finance

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:
The UK’s exit from the EU
Confidence level:
Confident
Comment:
Emigration of workers especially in the lower-paid segments of the economy will increase wage pressures. International trade-related costs will also be passed on (partly) to consumers. At the same time, increased public debt, related to both the pandemic and to support payments for Brexit disruptions will create fiscal dominance and thus prevent the Bank of England from taking aggressive action to keep inflation on target.

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

Answer:
The BoE will be unable to avoid inflation exceeding its target
Confidence level:
Confident
Comment:
Several factors will push inflation upwards in the UK (unlike in the euro area!) over the next few years. One, population decline due to emigration of EU citizens will cause upward pressure on wages and ultimately prices, e.g., in agriculture and services. Two, Brexit has put upward pressure on costs, which will ultimately result in higher prices. Three, fiscal dominance will prevent the Bank of England to take aggressive action to keep inflation on target as well as the fact that the two before-mentioned factors are supply- rather than demand-related.

Post Covid-19 Potential Output in the Eurozone

Question 2: How much lower will the potential growth rate of GDP in the Eurozone in 2025 be due to Covid-19 relative to pre-Covid forecasts?

 

Answer:
No different
Confidence level:
Not confident
Comment:
As before, I am not confident as it is hard to predict policy actions over the next few years. My estimate is a best-case scenario where policies are adopted to minimise damage and resolve the crisis (corporate insolvencies, bank fragility) heads-on. Under such a scenario there should be no reduction in potential growth rate.

Question 1: How much lower will the potential level of GDP in the Eurozone in 2025 be due to Covid-19 relative to pre-Covid forecasts?

 

Answer:
2% or less
Confidence level:
Not confident
Comment:
The impact of COVID-19 on potential GDP will depend a lot on policy responses. So far, these policy responses have been appropriate, trying to minimise negative effects. But political doubts remain whether they can be continued long enough to avoid damage.

Lockdowns and UK Economic Performance

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:
Small damage
Confidence level:
Confident
Comment:
I am comparing the economic development in the fourth quarter (dominated by lockdown) to the third quarter (between lockdowns): there will be an economic shock, mainly to the service sector. The negative impact of this lockdown, however, will be less than the impact from the first lockdown, as people have adjusted consumption habits and there will most likely be less precautionary savings.

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