Why no one really knows the economic outcome of the coronavirus crisis
How big will the recession be?
When will it end?
Will I still have a job when the emergency is over?
There are some questions to which the only reasonable answer is: no one really knows.
We live in a time of radical uncertainty.
From a rapid recovery to prolonged depression and everything in between, the range of possible outcomes is vast.
And for that reason the Bank of England has abandoned its traditional attempt at an economic forecast, instead publishing a “plausible economic scenario”, complete with the health warning that almost anything could happen next.
The Bank’s “reasonable baseline scenario” is grim, in it the UK economy contracts a record 30% in the first half of 2020 before rebounding as social distancing begins to lift and activity picks up.
The Bank thinks it is likely to be set to shrink by 14% this year.
Just three months ago it was forecasting growth of 0.75%.
The Bank expects the unemployment rate to more than double, peaking at 9% as more than two million people lose their jobs.
This would mean a higher rate of unemployment than during the last recession.
The Bank estimates that the banking system would have to absorb losses of £80 billion from households and businesses but also that would be able to do so while continuing to lend.
The assumptions that underpin this scenario are, in many ways, quite optimistic.
Social-distancing and government support begins to lift in June before being gradually phased out by September and there is no second wave of the virus, under the Bank's forecasts.
In the Bank’s assessment, the economy doesn't bounce back immediately but does recover strongly, reaching its pre-crisis peak by the second half of 2021.
The Bank assumes that the government’s support measures are successful - the Job Retention Scheme, in particular - in limiting lasting economic damage.
The rise in unemployment is temporary.
The Bank estimates that companies will need to find around £140 billion to fund themselves and that the majority will be able to do so.
It decides that there will be a lasting impact on consumer behaviour with “voluntary social distancing” and a greater tendency to save rather than spend.
There’s a lot that could go wrong here and, as the Governor, Andrew Bailey, concedes, there is “huge uncertainty”.
Medical developments are key.
So much depends on how long it takes to intrigue an effective vaccine.
Without one, social-distancing is surely here to stay and economic activity will continue to be suppressed.
The virus may be with us for some time.
It’s isn’t clear how or when businesses that are locked down will be able to reopen and what demand there will be for their goods and services when they do.
Coronavirus may also change our lives in lasting or permanent ways.
It’s possible to imagine a world in which people fly less, take fewer foreign holidays, and eat out at restaurants only rarely.
Businesses that were successful before the outbreak may find they aren’t viable in a post-crisis world.
The Bank has decided not to offer more support to the economy for now.
It has already done and awful lot: Bank Rate sits at 0.1%, the Term Funding Scheme incentivises bank lending and the Bank is in the process of buying £200 billion of government bonds.
The Governor, Andrew Bailey, says the Bank stands ready to do “whatever it takes”.