Questions and answers about coronavirus and the UK economy

Recession & recovery

News: All jump and no crawl: the Covid-19 time-warp

Before the pandemic, charts featuring sharp spikes and cliffs were always based on financial market data. Covid-19 means that previously slow things now move fast, with rapid shifts in the labour market and rising inequality across sectors and regions. 

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Who has financed higher government spending during the pandemic?

Borrowing by the UK government has hit peacetime highs this year. Often such increases in public debt rest on borrowing from abroad – but in this crisis, a sharp rise in domestic saving by households has offset public spending. In effect, the government has borrowed from taxpayers.

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Should the government be planning tax rises and public spending cuts?

A big rise in government borrowing has been an essential policy response to the health and economic effects of Covid-19. History indicates the importance of supporting the economic recovery rather than worrying about what is a temporary shock to the public finances.

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#economicsfest: What has coronavirus taught us about radical uncertainty?

Covid-19 has revealed the importance of access to key information when faced with an economic and public health shock of such magnitude. Understanding the role of uncertainty and the limitations of theory is critical in designing policies to navigate the challenges ahead.

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What do economics students see as today’s biggest challenges?

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#economicsfest: How can Bristol and the West of England ‘build back better’?

The pandemic is an opportunity to return to something better than ‘normal’, both nationally and in individual cities and regions. Just as Covid-19 has had varied effects across the UK, the recovery process could give local policy-makers the chance to shape the revival.

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#economicsfest: How can the arts recover?

Since the arts world needs crowds, it has become one of the major economic victims of Covid-19. Uncertainty about the future of big gatherings and how to make them safe is hitting organisations, staff and the army of freelancers who make this sector work.

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How has wage growth varied across the UK economy during the pandemic?

Covid-19 has had uneven effects on people’s health, finances and jobs. There is wide variation in the impact on earnings across the economy, particularly between the public and private sectors. Sectors with high shares of furloughed workers have experienced low wage growth.

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How might the autumn lockdown affect different sectors of the economy?

Because renewed lockdown is intended to be shorter and less strict, the damage to economic growth is likely to be smaller than previous measures. If it can help to bring Covid-19 under control, the longer-term benefits to the economy could outweigh the short-term costs.

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Why is it hard to compare the economic costs of lockdown across countries?

The urge to compare the UK’s economic performance with other countries is natural in times of disruption. Globally recognised measures like GDP seem to allow this. But all is not as it seems: the UK’s service economy is one reason why the costs of Covid-19 may be especially high.

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Data: US voters' election expectations

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How is coronavirus affecting the UK’s retail sector?

UK retailing has been deeply affected by Covid-19 – but the effects are far from uniform and, to an extent, they are accelerating structural changes already happening. Re-opening has seen some reversal of the damage from lockdown, but the long-term direction of the sector remains unclear.

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How is Scotland’s economy faring in the pandemic?

With coronavirus entering a dangerous phase and winter approaching, the outlook for the Scottish economy has never been more uncertain. Many jobs remain furloughed, working hours have fallen sharply, and activity in the services sector is below where it was a decade ago.

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What has been the impact of Covid-19 on Northern Ireland’s economy?

Given the resurgence of the virus and a bigger fall in Northern Ireland’s GDP than expected, policy is focused on restoring public health and maintaining some stability of jobs and incomes. But delays in tackling underlying economic weaknesses will have long-term costs.

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How can authorities control coronavirus without killing the economy?

Severe restrictions introduced in response to Covid-19 have disrupted economic activity, especially retail, services and hospitality. Evidence from local lockdowns suggests that it is possible to control the virus without resorting to measures that damage the economy.

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How is coronavirus affecting the Welsh economy?

As across the UK as a whole, the Covid-19 crisis has had a huge impact on the Welsh economy. Despite evidence of a recovery in Wales, the risks of a further spike in infections and forthcoming changes in government support cloud the economic outlook.

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Why has the stock market bounced back when the economy seems so bad?

The economy is suffering as a consequence of Covid-19 and measures taken to contain it, yet share prices have been rising sharply. This raises the possibility that the stock market is now in a bubble, with valuations increasingly detached from business and economic fundamentals.

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Could a national investment bank support recovery from the Covid-19 crisis?

The unprecedented challenges brought by coronavirus will require an investment-led recovery at a time when confidence in the economy is weak. The establishment of a national investment bank could foster a more positive climate for growth, promoting innovation, employment and improved productivity.

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What kind of economy do people want if we ‘build back better’ after Covid-19?

Many people are debating whether the pandemic offers an opportunity to return to something better than ‘normal’ – in particular, moving away from using GDP growth as the sole indicator of progress. Developing greater economic and social resilience should be central to ‘building back better’.

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Will coronavirus cause a big city exodus?

Big cities thrive because of the economic and social benefits of proximity – but proximity also helps to spread Covid-19. Does this mean an end to the big city revival of recent years? Much will depend on how quickly we exit the pandemic – and how far the forced experiments of lockdown translate into new norms.

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How did central banks respond to the coronavirus crisis?

The monetary policy response by three of the world’s major central banks – the Bank of England, the European Central Bank and the US Federal Reserve – has contributed significantly to mitigating the economic consequences of the global pandemic.

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How is coronavirus affecting the banking sector?

While the banking sector will be negatively affected by the pandemic, it is also critical for economic recovery. But the crisis will strengthen competitive pressures on banks by accelerating trends towards digitalisation and new financial service providers.

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What will the shape of the recovery tell us about the best policy response?

As lockdown restrictions ease, economic activity in the UK is beginning to recover. Will the economy bounce back to where it was before the onset of the Covid-19 crisis? Or will we be left dealing with the economic fallout of coronavirus for the foreseeable future?

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How is coronavirus affecting emerging markets and developing economies?

The output losses in low- and middle-income countries triggered by the Covid-19 crisis are likely to leave long-lasting scars, reducing potential growth. The UK is not insulated from the economic fallout due to trade links and financial exposure.

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What are the fiscal consequences of the UK response to coronavirus?

Bold fiscal policy has aimed to mitigate the collapse in UK economic activity, but the recession makes the public finances more precarious. How can we assess the fiscal consequences of the crisis – and the interplay between fiscal measures and the macroeconomy? 

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How can production network analysis inform policy on Covid-19?

The economy is characterised by intricate linkages between consumers, businesses and sectors across national and global supply chains. Production network analysis provides insights into the effects of imposing and lifting lockdowns – and policies to support recovery.

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After coronavirus, can the housing market support economic recovery?

The UK’s housing market was essentially closed during lockdown with residential moves severely restricted while millions of households were supported with their housing costs and had the threat of eviction removed. What role might the sector play in the recovery?

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How is coronavirus affecting the creation of new firms and new jobs?

New business creation is a key part of any economy, notably for generating new job opportunities. The sharp decline in start-up activity in the UK during lockdown is likely to have a strongly negative impact on aggregate employment in the future, regardless of the shape of the recovery.

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Should Modern Monetary Theory inform economic policy in the crisis?

The crisis has led to renewed interest in the analytical foundations and policy implications of Modern Monetary Theory (MMT), an unorthodox approach to the management of monetary and fiscal affairs. MMT is not a safe basis for a programme for economic recovery.

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After coronavirus: deflation or inflation?

Most economists are reasonably confident that once the pandemic has subsided, employment will eventually recover to its previous normal levels. But there are two markedly different schools of thought on the future of inflation: further deflationary pressures or a return to systemic inflation.

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What does coronavirus mean for the future of sport and fitness clubs?

With the closure of indoor sports facilities, many people have shifted to alternative forms of exercise. Even after re-opening, this is likely to affect gym owners and staff. Some previous gym users may also be getting less exercise, leading to concerns about rising obesity.

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Is the Covid-19 recession caused by supply or demand factors?

UK GDP is falling sharply in part because firms are less able to produce goods and services, and in part because consumers aren’t spending as much. Which mechanisms are the most important – and why does this matter for policy-makers?

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How will the economic effects of coronavirus vary across areas of the UK?

There are significant differences in economic performance and wellbeing between and within areas of the UK. The health and economic crisis caused by Covid-19 is likely to exacerbate these existing inequalities.

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How has coronavirus affected pubs, cafes and restaurants?

The restaurant industry was effectively brought to a halt by lockdown. Since re-opening, there have been modest signs of recovery, but social distancing and widespread working from home continue to limit progress – and the sector is typically hit hard by recessions.

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How much will lifting lockdown start to reverse the UK’s economic slump?

Preliminary data suggest that the dramatic fall in UK consumer spending preceded the introduction of lockdown and social distancing in March. Will this fall in consumption reverse as lockdown restrictions ease – or persist because of subdued consumer confidence?

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Does the world economy face a danger from rising protectionism?

The Great Recession of 2008/09 seems to have broken the link between recessions and higher barriers to imports. During the coronavirus crisis, new forms of protectionism, such as export controls and trade-distorting stimulus programmes pose a more serious risk to unfettered trade.

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How do changes in asset prices affect the real economy?

There were big falls in share prices well before we grasped the likely severity of the pandemic and the economic impact of coronavirus. So what are the interactions between asset prices and economic activity – and what might price changes imply for future output growth?

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Why should the government provide income protection in a recession?

Unemployment insurance payments would be insufficient to offset the large income losses due to coronavirus and the ensuing recession. Governments are stepping in to provide much-needed income support to households that face significant declines in their monthly income.

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What are the key sources of data for measuring the economy in a crisis?

Official statistics are the standard source of information about the economy. But when, as now, economic activity is falling sharply, alternative indicators of what’s happening to households and businesses are invaluable. Where else should decision-makers look?

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What are the effects of coronavirus on the UK and US labour markets?

Millions of jobs have already been lost in the Covid-19 recession. What do we know about the kinds of workers who have been most affected? And what will be the likely effects on economic inequalities and the future prospects of people whose employment and earnings have been hit?

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How can we measure what is happening in the economy now?

To design and implement appropriate policy, it is important to understand what is going on in the economy now and in the recent past. That is one of the reasons why there has been such focus on more timely indicators of economic activity during the coronavirus crisis.

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Coronavirus and the economy: what are the trade-offs?

The Covid-19 health emergency has caused economic havoc on a scale not seen in living memory. It is important to understand the interactions between the epidemic and the economy to be able to deal with the difficult trade-offs facing policy-makers and the public.

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Why is uncertainty so damaging for the economy?

The Covid-19 pandemic and policy responses have made life much more uncertain for everyone – individuals, organisations and governments. What impact does all this uncertainty have on the economy and how can policy-makers respond?

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Which firms and industries have been most affected by Covid-19?

Almost all UK businesses have been badly affected by the spread of Covid-19, but some industries have been hit harder than others. Financial market data and surveys of firms themselves provide insights into the scale of the impact on sales, employment, supply chains and business uncertainty.

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Can policy steer us towards a greener and fairer recovery?

By acting fast, coordinated policy can create jobs and steer a resilient, inclusive and sustainable recovery from the Covid-19 crisis. The alternative of a prolonged global depression and unmanaged climate change would be profoundly damaging.

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How will Covid-19 affect Northern Ireland’s economy?

The crisis is likely to produce a severe recession in Northern Ireland. Previous experience suggests that the recovery phase could be rather shallow. Indeed, strictly speaking, the region’s economy had not completed its recovery from the last recession before Covid-19 struck.

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How can labour market policy help to get people back into the right jobs?

As the economy restarts after the coronavirus crisis, workers that became unemployed eventually find new jobs. But initially these are often not the ‘right’ jobs – they are not good matches between employees’ skills and employers’ needs. What can policy do to improve workforce reallocation?

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How hard will coronavirus hit Scotland's economy?

Just like everywhere else, Scotland’s economy is facing unprecedented stress from the Covid-19 crisis. How it performs in the months ahead will depend on the policy choices of Scottish ministers – and how these differ, complement or cut across UK-wide policies.

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What is the size of the fiscal multiplier?

What is likely to be the impact of a government stimulus or austerity plan in response to the coronavirus crisis on the whole economy? That is what is measured by the ‘fiscal multiplier’ – and the evidence indicates that increased public spending has a bigger impact during recessions.

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Quantitative easing and monetary financing: what’s the difference?

In March, the Bank of England’s Monetary Policy Committee restarted the programme of asset purchases known as quantitative easing or QE to provide support for the economy during the coronavirus crisis. How does it work and does it constitute ‘monetary financing’?

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‘Monetary financing’: is it happening and what are the dangers?

Has the Bank of England been ‘printing money’ to pay for government programmes to tackle the economic damage from the coronavirus crisis? No: it is useful to understand the division of responsibilities between fiscal policy and monetary policy – and why it exists.

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Can textual analysis be used to track the economy during the pandemic?

Newspaper articles and social media posts often feature discussion of economic conditions and economic indicators. During the coronavirus crisis, can textual analysis be used to turn these qualitative data into a numerical measure to help us to understand the ‘real-time’ health of the economy?

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How does the government’s furlough scheme work?

The Coronavirus Job Retention Scheme was set up to encourage employers to keep their staff on during lockdown and make it easier for everyone to return to work when restrictions lift. How does the furlough scheme work and what will happen to jobs as it’s wound down?

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What happens to trade in a global downturn?

World trade typically falls far more than world GDP in a global downturn, but then bounces back quickly. Early indications suggest that the contraction in trade in the looming Covid-19 recession will be even bigger than what followed the 2007/08 global financial crisis.

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What can we learn from historical recessions and depressions?

While the Covid-19 recession has some unique characteristics, research on past experiences of economic downturns offers valuable lessons on how long recovery takes and what policies might accelerate that process.

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UKRI Economic and Social Research Council
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