MNI INSIGHT: Lockdown May Mean BOE Sees 'W-Shaped' Recovery

The Bank of England Monetary Policy Committee could factor in estimates of the likely impact of the UK's newly-announced month-long national lockdown into projections contained in Thursday's Monetary Policy Report, possibly turning its modal projection for a roughly lopsided V-shaped recovery into a W.

While quarterly projections contained in what was previously known as the Inflation Report typically have a cut-off point a week ahead of publication, the MPC can make late changes, though it is unlikely to publish any individual breakdown of the likely cost of the second lockdown announced by Prime Minister Boris Johnson on Saturday, MNI understands.

The modal, or most likely, path in the August MPR was an 'interrupted V', with an initially rapid economic recovery from the Covid shock followed by a slow crawl higher before activity reached pre-pandemic levels. A second lockdown was not even contemplated in August's scenario analysis, and is would be likely to twist the modal recovery path into a W.

POLITICALLY SENSITIVE

Breaking out estimates of the likely cost, however, would be problematic.

Publishing such a figure could be politically sensitive, with government rebels opposed to the lockdown. Its cost would also have to be calculated relative to how consumption would be hit in a high-infection environment with no lockdown but voluntary social distancing, rather than in a Covid-free world, something on which MPC members might struggle to reach a shared view.

One MPC member, Gertjan Vlieghe, said in October that perceived risk of infection has had more a much clearer impact on consumer behaviour and economic performance than rule changes, though he acknowledged that the research is evolving. It is also unclear whether his colleagues on the MPC share his view.