Andrew Bailey: Getting over covid

Speech by Mr Andrew Bailey, Governor of the Bank of England, at the Resolution Foundation, Mansion House, London, 8 March 2021.

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

Introduction

It's a great pleasure to be participating in a Resolution Foundation event today. I wish I could say what a pleasure it is to be at the Foundation, but that has to remain a hope for the future.

I am going to talk today about the future, the post Covid future as the economy recovers from this traumatic experience. If I had to summarise the diagnosis, it's positive but with large doses of cautionary realism. To summarise, after starting with some description and assessment of the Covid shock to the economy, I am going to draw out four important points:

• Covid has been both a demand and supply shock to the economy, and the recovery therefore has to be in both elements, unusually so for recoveries I think. Absent a dual recovery, dealing with the issues that arise will be more difficult.
• Second, there are reasons to believe that so-called longer-term scarring damage to the economy will be more limited than in some past recessions, but there will most likely be structural change which will influence the future of supply and demand.
• Third, it is important to boost supply capacity to raise the sustainable rate of growth in the economy and thereby ease the task of managing the necessarily higher level of public and corporate sector debt.
• And fourth, taking all of this together, and consistent with the current setting of monetary policy and the outlook for the economy as set out in the February Monetary Policy Report, it is important to emphasise the role of the forward guidance that the MPC has adopted, and the announcements made a month ago on so-called toolbox issues.