If the habits of the pandemic take significant hold in the economy in the years to come, it could significantly boost UK GDP growth, according to George Lagarias, chief economist at Mazars.
Lagarias is relatively sceptical that changes such as permanent working from home will happen over the long-term, but said if it does, one likely outcome would be that regional towns and cities would become larger relative to the capital.
Lagarias said: “The evidence shows that countries which have a number of cities of roughly the same size, rather than the UK where London is by some distance the largest, and Birmingham trails in second with 1m people.
"So I think if the UK had a more even spread then GDP would rise, but there would be a lot of pain along the way.”
He said central London property would fall in value, while many retail staff would be out of a job. This would, he said, lead to a rise in what economists call the “frictional” rate of unemployment, that is, the number of individuals who are unemployed for a relatively short period of time as they move into a different role, but more growth would happen in the regions, boosting GDPoverall.
The economist said: “I watched the UK TV series Sharpe, and actually it illustrates this, because it is set during the Napoleonic wars, when the country was just entering the industrial revolution, and in one of the episodes he remarks that unemployment was very high.
"This is an example of the pain that happens as economies change. And looking at London property, people have told me that in the early 1990s, they literally couldn’t give property in Liverpool Street away. Owners allowed tenants to move in there and just pay the utility bills, so things do change.”
He says the outcome of all the disruption is likely to be deflation in the economy, as a result of the temporarily higher unemployment, even if GDP rises.
In the 100 years of the nineteenth century, when the UK economy expanded rapidly, there was deflation 52 out of those years, as technology made many items cheaper, while the frictional rate of unemployment increased as some jobs became obsolete and others were invented.