UK  160  15 10  140 Range of previous recessions  2008 0  0  120 UK EU Referendum Act  5 10 15 20 25 30 35 40 Quarters since pre-recession peak in GDP  Sources: ONS and Bank calculations. 5 -5  100  -10  80  -15  60  -20 -25  2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018  Sources: Eikon from Refinitiv, Japanese Cabinet Office, OECD, ONS, Oxford Economics, Statistics Canada, US Bureau of Economic Analysis and Bank calculations. Similarly, a prolongation of global trade uncertainty could undermine the global expansion. The impact would be magnified if financial markets move such a possibility from their tail risks towards their central scenarios.30 29 Based on simulations using NiGEM. The baseline scenario assumes a 10 percentage point increase in tariffs that persists for three years. The additional impact from tighter financial conditions is based on a 75bp increase in term premia and 50bp increase in equity risk premia globally; and the uncertainty impact is proxied by assuming agents anticipate a further 10pp increase in tariffs the following year. Global monetary policy is held fixed for five years. 18  All speeches are available online at www.bankofengland.co.uk/speeches  18  Most fundamentally, the larger and the more permanent the disruption to global trade—the greater the deglobalisation—the greater the reduction in both activity and supply capacity of economies. The latter—a material hit to supply—is something that advanced economies have not experienced since the mid-1970s.
For example, the process of private sector balance sheet repair is nearing an end and the global stance of fiscal policy is shifting from contractionary to expansionary. Any rise in potential productivity growth would also boost the equilibrium rate. The scope for the equilibrium rate to rise will also be greater if spare capacity is larger than currently estimated. 11 See Carney, M (2018), ‘Guidance, Contingencies and Brexit’. 12 For example, as explained by Richard Clarida in his speech ‘Data Dependence and US Monetary Policy’, 27 November 2018. 7  All speeches are available online at www.bankofengland.co.uk/speeches  7  In the MPC’s projections published last week, the balance of headwinds to growth and more accommodative policies are expected to return global growth to around potential rates by the end of the year (Table 1). Table 1: MPC projects global growth likely to settle around potential rates Projections Average 1998-2007  2018  2019  2020  2021  Memo: potential  PPP-weighted  4  3½  3¼  3¼  3½  3½  UK-weighted  3  2½  2  2  2  2¼  Sources: Bank of England, Eurostat, IMF World Economic Outlook (WEO), ONS, US Bureau of Economic Analysis and Bank calculations. Notes: 2018-21 figures show annual average growth rates. Potential growth is calculated as an average from 2019-2021. This is the most likely scenario unless there are shocks from the other two cycles.