The coronavirus crisis will leave lasting economic and psychological scars on the UK, Bank of England chief economist Andy Haldane said on Monday, with the whole country now “feeling more anxious about the future”.
Every person and business in the country has been exposed to the health and economic crisis caused by Covid-19, Mr Haldane said, however the pandemic has also flicked on a digital switch that will accelerate the shift in how we work, save and spend in the future.
“The Covid crisis has led to a massive loss of lives and livelihoods. It will leave lasting scars, financial and psychological,” Mr Haldane said in a speech to TheCityUk, a financial services industry group.
“Economic scars, such as persistently lower levels of investment and innovation and persistently higher levels of unemployment and debt, which drag on economic growth. And psychological scars, such as increased levels of caution in how much we interact, travel and spend."
Since the start of the pandemic, more than 50,000 people have died in the UK, 1 million people have lost their jobs and about 9 million have experienced a drop in income.
Mr Haldane said the role of fiscal and monetary policy was to cushion the impact of the economic fallout from Covid on households and companies to limit “the depth and longevity of the scarring effects of the crisis”.
The BoE injected a further £150 billion ($195bn) of stimulus into the UK economy earlier this month, taking the total stimulus since the start of the pandemic to £895bn.
While the crisis will have lasting implications for individual behaviour and company business models, Mr Haldane said some behavioural shifts will leave scars, and others will open up new opportunities, such as the rapid adoption of digital technology.
He pointed to the "Zoom-boom" that came during the peak of the pandemic in April when about half of the UK workforce was working remotely, and the surge in online shopping, which has risen from a fifth of transactions pre-Covid to more than a quarter now, with online food deliveries doubling since the start of the year.
This has created opportunities for innovation in the payments industry, he said, with ATM withdrawals in October around a quarter lower than a year ago, and contactless and remote payments rising more than 10 per cent in the 12 months to July.
Another area of opportunity comes for FinTech companies that can plug SME financing gaps, which re-opened overnight during the Covid crisis when many companies found themselves needing credit to tide over cashflow shortfalls.
"What was a digital priority pre-Covid has, for many, now become a digital necessity. The combination of new technology, and shifts in behaviour resulting from Covid, presents a real opportunity to refashion the payments and lending landscape, for good, in ways which benefit households, companies and the economy," Mr Haldane said.
Last month, the economist, who has only been to his office twice in the last six months due to the pandemic, said working from home could stifle creativity and hamper productivity if it continues long-term.