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The economy's long Covid

We need to think about the overhang of debt created by the pandemic. Not government debt, of course, but corporate borrowing. Bank of England data show that small- and medium-sized firms (those with turnover of less than £25m) have increased their debt by 28 per cent since the pandemic began as they tried to tide themselves over during collapsing revenues.

Granted, many of these loans are through government-guaranteed schemes. But such guarantees only protect banks. Borrowers are still liable for them. Which poses a danger that if they are unable to do so we’ll see a wave of business closures and job losses, especially as the furlough scheme ends and the interest on the loans falls due. And many of those firms that stay in business will be less able to expand.

This, however, is not the only way in which the pandemic might leave permanent scars on the economy. A second deep recession in just 11 years could dampen entrepreneurs’ animal spirits. High unemployment means young people are missing out on experience and training, which has long-lasting effects on their future productivity, employability and earnings. What’s more, the pandemic might have made us more frugal in the long-term. Many of us are still drinking with our friends in our gardens rather than in pubs. Working from home means no longer buying coffees and pastries during the commute to work. And the shift to online shopping will intensify the decline of high streets: latest data show that while online sales have fallen recently they are far above pre-pandemic levels.

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