Ben Broadbent: Covid and the composition of spending

Speech by Mr Ben Broadbent, Deputy Governor for Monetary Policy of the Bank of England, Webinar, 12 January 2021.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Introduction

Good morning. Thank you for making the time to attend this talk.

It is dispiriting to have to give it as we enter another national lockdown. But the mass vaccination programme now underway also provides genuine hope that this latest set of measures may be the last. And in the meantime, as far as the economic effects of the pandemic are concerned, we should take the opportunity to learn from what happened in 2020. In this respect I want to focus today on one particular aspect of the experience last year, namely the huge shifts in the pattern of consumer spending.

Chart 1 is one place to start. It plots annual growth in GDP, from one fourth quarter to the next, against the same for retail sales1. As you all know, the first lockdown led to an enormous drop in economic activity, of over 20%, during the first half of 2020. And despite a very sharp recovery in the summer, as the first lockdown was lifted, it's likely that GDP in the fourth quarter of last year was around 10% lower than at the end of 2019. That would make it the sharpest decline, through any calendar year, at least since 1920 (as far back as quarterly estimates go).