The governor of the Bank of England has said that long-lasting changes to the UK economy are likely as a result of the COVID-19 crisis.
Andrew Bailey said on Tuesday that changes to the structure of the economy were likely, despite the recent “big step forward” with COVID-19 vaccines that could end the pandemic.
“My best guess is that there will be lasting changes,” Bailey said during a virtual keynote address to the annual TheCityUK conference.
The pandemic has already fundamentally altered the way people work and shop, with a surge in home working and online shopping.
“If these changes persist, they could require a reallocation of labour and capital,” Bailey said.
He added that the way things are manufactured may also need to change, without going into detail.
Bailey compared the likely permanent changes in the structure of the economy to the shift away from heavy industry and towards banking experienced in the 1980s in Britain.
“It’s true that we saw deep and painful structural change in the economy in the late 1980s and into the 1990s with the transition from heavy industry and mining to a much more services oriented economy,” Bailey said. “That was a much more painful process with very difficult consequences.”
The governor said he was more optimistic about the changes from COVID-19. He said the structural changes would lead to a reallocation of labour within sectors rather than between sectors, which would be an easier transition.
Bailey said the COVID-19 crisis could also end a decade of low productivity growth as companies invest to address the structural changes and pressing issues such as climate change.
“We may — we may — see a reversal of low productivity growth,” the governor said. “COVID may be the spur, the change agent if you like.
“We must now focus and push ahead hard with the necessary changes to support changing the direction of our climate.”
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