Sharp downgrade in this year’s forecast underrate further vulnerabilities ahead, says Yael Selfin, Chief Economist at KPMG UK.
“Despite the stark numbers issued by the Bank of England today, additional pressure on the economy is likely. Some social distancing measures are likely to remain in place until we have a vaccine or an effective treatment for the virus, with people also remaining reluctant to socialise and spend. That means recovery is unlikely to start in earnest before sometime next year.
“Looking at the medium term, beyond the impact of reduced investment, other forces could to be in play dampening future productivity. Supply chains are likely to be reconfigured in light of this crisis, potentially increasing geographical diversification and reducing efficiency in order to increase resilience. ‘Just in time’ operations are also likely to be a thing of the past, further eroding productivity. On the other hand, we could see significant consolidation among SMEs, lifting productivity among the long tail of underperforming businesses.
“Brexit is another significant downside risk for this year’s outlook, with the probability of a smooth transition to a comprehensive free trade agreement with the EU in January relatively small, adding further uncertainty to businesses and the prospect of increased trade frictions next year.”
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