I would caution against over-interpreting the detail of this chart, as there are several ways to represent aggregate supply and demand, and thus the output gap. But, detail notwithstanding, it is clear that while a gap has opened up between demand and supply during the Covid pandemic, the overwhelming feature is the coincident hit to both demand and supply. That stands in marked contrast to the more pronounced impact on demand following the global financial crisis, and persistent period of spare capacity thereafter. As well as the Covid shock, the behaviour of supply and demand also reflects the nature of the policy response, and in particular the so-called furlough scheme (the Coronavirus Job Retention Scheme). By temporarily supporting jobs, this scheme has avoided a much larger spike in unemployment, which would other things equal have resulted in a smaller fall in supply and a much wider margin of spare capacity. For a monetary policy maker interested in the output gap and how it will evolve in the recovery from Covid, it is clear we need to focus on the recovery of both supply and demand. More so than usual, the recovery from Covid requires a recovery of the supply side. Some of the effects on supply directly related to restrictions on activity and voluntary social distancing are likely to be temporary, and should start to reverse as the health outlook improves and along with the vaccination programmes enable restrictions to be eased.

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.