There are I think three reasons for this. First, it is in the nature of the shock – Covid itself does not destroy economic capacity over the longer term in the same way as a war, although of course the number of lives lost has been tragic. Second, the evidence here and in other countries indicates that the economic impact of Covid has attenuated with each successive wave – we are all by nature adaptive in our behaviour. For that reason, both in the UK and in a number of other countries, GDP releases during more recent periods of restrictions have typically surprised to the upside, relative to our expectations based on the effect of previous lockdowns. Third, the economic policy response has been designed to ensure that the longer term damage – often termed scarring – has been as small as can be. This has involved both monetary and fiscal policy pursuing their own independent objectives in a consistent and complementary manner. And just to be very clear on this point, when we use the tools of policy 1/5  BIS central bankers' speeches  consistently, and the objectives of policy are consistent, there is no compromise of independence whatsoever. So, we find ourselves now in a situation where there is an output gap, or slack as it is also called, but it is nowhere near as large as would be implied by the fall in demand if this was a normal recession.
On the other hand, its implementation may be a bit too ambitious and a difficult task for our countries. Therefore it is in our interest to find ways to make it more suitable to our needs by following a gradual approach rather than jeopardising its success through an uninformed adoption. 1  According to Basel II, the assessment of the borrower’s credit risk will depend on the performance of the economy, whether it is in a upward or downward trend. In the worst case, when the economy will be wholly swept in recession, banks will have automatically either to increase the level of capital, or shift towards less risky assets, that most intuitively calls for a slow down to provide loans thus engendering credit crunch and further recession.