In just two weeks our economic prospects have worsened considerably. In the eyes of the International Monetary Fund (IMF), at least.On October 13, in its World Economic Outlook, the IMF estimated that the UK economy would contract by -9.8% this year and grow by 5.9% next.On Thursday, it lowered those forecasts to -10.4% and +5.7% respectively."The second-wave risk has materialised," said Kristalina Georgieva, the IMF’s Managing Director.
Although she believes that while the the resurgence of the virus and the reimposition of restrictions to contain it will knock the wind out of the recovery, it is unlikely to cause another recession."We are not projecting a dramatic drop in activity of the kind we had in March," she said.
"The recovery will be held back but it is still a recovery from the full-blown lockdown."
There’s a logic to this.
A lot of economic activity has moved online in the last six months and we’ve learned to work from home.
The IMF assumes this will enable us to adapt better to another period of disruption.
It’s also likely that those businesses which are most exposed to the tightening restrictions - in hospitality, leisure, transport and some parts of retail - won’t be hit quite as hard by a second wave, although that’s principally because their sales have never fully recovered from the first one.
When you’re on your knees, the fall is less great but that’s hardly cause for cheer.Hardship lies ahead again.
The IMF praises the UK’s "aggressive policy response" to-date, which it describes as "one of the best examples of coordinated action globally", but it urges the government to go further.Ongoing financial support for businesses and households is "essential" and there’s room for the chancellor to "be agile and flexible" in cutting taxes and increasing spending to support growth.At some stage the government will need to demonstrate it can afford to repay the hundreds of billions of pounds it is borrowing but "fiscal consolidation" should be "gradual" and should begin when the crisis is over."The economy is a ship in rough waters and it has not yet come to shore and been anchored," Georgieva insists, strongly suggesting that it will be impossible for the government to start to reduce both the deficit and the national debt without raising VAT and possibly income tax - something the Conservatives pledged not to do in their election manifesto a year ago.The outlook is grim and the IMF says the risks are "weighted to the downside".
Brexit is one of those things that could still go wrong.The IMF believes failure to secure a CETA-style trade agreement with European Union in the coming days "could bring more persistent unemployment and corporate balance sheet stress".Translation: no deal would be a disaster.