The best we can say is that how the output gap develops in the recovery from Covid will depend on the net effect of the two, both of which will need to move by more than in normal recoveries. There is another element to this part of the story which is hard to assess at present, namely to what extent the more structural changes we have seen during the Covid crisis will persist, and what effect they will have on the recovery? There is a lot of uncertainty around these elements, but my best guess is that we will see 6  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  6  some persistence, not full persistence but not a full reversion to pre-Covid either. We will work more from home than we used to and shop more on-line because new habits will persist to some degree, and to the extent they unwind it will be over a period of time. The second point is that I see reasons to believe that the longer-term negative economic effects of the Covid shock will be smaller than we have seen in the past, particularly in the 1980s and early 1990s. As I described earlier, it seems likely that task and job reallocation and capital redeployment has increased since then, for instance because workers will need less significant retraining to move between sectors.

Source: Decision Maker Panel and Bank calculations  10  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  10  Chart 3: Real GDP 4-quarter growth  2010-2016  2000-2007  2017-2019  4-quarter growth Period averages 2000  2003  2006  2009  2012  2015  5% 4% 3% 2% 1% 0% -1% -2% -3% -4% -5% -6% -7%  2018  Source: Office for National Statistics and Bank calculations Chart 4: Whole economy labour productivity (c) 4-quarter growth  2010-2016 2000-2007 2017-2019  4-quarter growth Period averages 2000  2003  2006  2009  2012  2015  5% 4% 3% 2% 1% 0% -1% -2% -3% -4% -5% -6% -7%  2018  (c) Output per hour worked Source: Office for National Statistics and Bank calculations  11  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  11  Chart 5: Real business investment 4-quarter growth 20% 15%  2010-2016  10% 5% 0%  2017-2019 2000-2007  -5% -10% -15% -20%  4-quarter growth Period averages  -25% -30%  2000  2003  2006  2009  2012  2015  2018  Source: Office for National Statistics and Bank calculations  Chart 6: Real government investment 4-quarter growth  2010-2016 2017-2019 2000-2007 4-quarter growth Period averages 2000  2002  2005  2007  2010  2012  2015  2017  60% 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% -60%  2020  Source: Office for National Statistics and Bank calculations  12  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  12  Chart 7: Capital services (d) 4-quarter growth 5% 4%  2017-2019  2%  2010-2016  2000-2007  3% 1% 0% -1% -2% -3%  4-quarter growth  -4%  Period averages  -5% 2000  2002  2005  2007  2010  2012  2015  2017  2020  (d) volume index of capital services for the market sector Source: Office for National Statistics and Bank calculations  13  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  13  References Barrero, J M, Bloom, N and Davis, S J (2020), “Why working from home will stick”, Becker Friedman Institute, Working Paper, 2020-174 Bloom, N, Bunn, P, Mizen, P, Smietanka, P and Thwaites G (2020), “The impact of Covid-19 on productivity”, Bank of England Staff Working Paper No.