events are beyond your control, contributing to fatalism about the future and excess levels of caution. 7 yet the risks facing individuals, businesses and the economy at present are, at least to some degree, within our control, collectively if not individually. all of these risks can be mitigated, if not eliminated entirely, by the actions of individuals, businesses and policymakers. see grupe and nitschke ( 2013 ). all speeches are available online at www. bankofengland. co. uk / news / speeches and @ boe _ pressoffice one safeguard against these risks comes from our individual actions when we socialise, shop and work. a further, collective, source of insurance comes from public policy – public health policy, fiscal policy and monetary policy. extra - ordinary action has been taken on all three fronts during the covid crisis to contain risks to the public, businesses and the economy. as importantly, it has been made clear that further action would be taken on all three fronts where risks to re - escalate. taking the three largest risks in turn, on public health there has been a worrying rise in covid cases across the uk recently. in response, a sequence of local lockdown measures have been put in place and last week these were accompanied by some tightening of national restrictions. while it is too early to judge what economic impact these measures will have, they are likely to restrain economic activity and slow growth. at the same time, it is important to put the likely impact of these measures in proportion. while the impact on individual businesses may be large, their direct impact on aggregate activity is likely to be modest. the measures affect only a sub - set of spending, notably hospitality ( 7 % of total consumption ) and work - related travel ( also 7 % ). if both categories were to fall to their levels at the start of summer, as lockdown began to be eased, this would take a little over 3 % off levels of consumption in the fourth quarter and 2 % off gdp. but there are good reasons to think this is likely to be a significant over - estimate. measures announced so far are nothing like as severe as earlier in the year. even during that earlier period, we saw significant substitution between spending categories, partially insulating aggregate spending. in this respect, it is notable how quickly spending in the worst covid - affected us states bounced back recently following their second wave. of course, it is possible the indirect effects of

with harmful side - effects – as when the exaggerated fear of flying after 9 / 11 caused more people to drive. 5 these exaggerated risk perceptions are often amplified by others ’ words and actions. caution is contagious. what often then emerges is a “ popular narrative ”. these narratives have been found to be an important driver of collective behaviour in financial markets and the economy. 6 behavioural biases at times of existential risk, spreading contagiously, can result in pessimistic popular narratives detached from reality. at times of stress, a global game of chinese whispers can generate unduly negative expectations. see haldane see gigerenzer see akerlof and shiller all speeches are available online at www. bankofengland. co. uk / news / speeches and @ boe _ pressoffice i think the prevailing popular economic narrative, among businesses and households currently, is unduly negative. it has emphasized recession and risk over recovery and resilience. it has resulted in good economic news ( of which there has been plenty ) being discounted too readily, and fearfulness about the future being accentuated. let me give a few simple examples. chart 5 plots a simple google search of the relative incidence of two words – “ recession ” and “ recovery ” ; it is an economic pessimism ratio. before the covid crisis, the pessimism ratio was steady. as the crisis struck there was a predictable and sizable spike upwards, by a factor of roughly 8. since then the ratio has fallen somewhat, as we might expect as the economy has moved from recession to recovery. the dynamics of this sentiment indicator are nonetheless revealing. the drift down in the ratio has been very gradual. it remained elevated well after economic recovery had commenced and recession ceased. even now, four or five months into recovery, recession is out - googling recovery by a factor of 15 to one, above its pre - covid level. the prevailing popular narrative on the economy has remained recessionary. chart 5 : ratio of google trends topic searches for the term recession vs economic recovery ratio of searches for recession : economic recovery economic growth monthly gdp q2 gdp released showing growth release sep - 19 oct - 19 nov - 19 dec - 19 jan - 20 feb - 20 mar - 20 apr - 20 may - 20 jun - 20 jul - 20 aug - 20 source : google trends a particularly revealing episode is associated with the notable spike in the pessimism ratio on