Post-Pandemic Prospects

Chris Waller - May 2021
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We are now seeing light at the end of the Covid-19 tunnel and the question of the future direction of the global economy raises its head.

Here in the UK the National Institute for Economic and Social Research estimates that 80% of households have managed to save money during the restrictions creating a fund of around £160 billion. The Bank of England believes that between 5% and 20% of this could be spent in the next 12 months. If the upper figure is correct then this could pose problems for the BoE’s inflation target of 2%. I am inclined to think that the majority people will be cautious in their spending until the future of the economy is much clearer.

Adding to fears of impending inflation is the stimulus that the government has given the economy during the last 12 months. The government has spent over £300 billion buttressing households and businesses with the furlough scheme while the BoE gave a further boost of £150 billion to the economy last November. This latter has increased the total spent by the government under Quantitative Easing to £895 billion.

In the US President Biden is implementing a plan to spend $1.9 trillion to boost the economy, some of which will necessarily spill over into the global economy as demand for raw materials and energy. The EU likewise is boosting its economies to the tune of €750 billion, some of which will, despite current trading frictions, find its way into the UK economy thus creating a further increase in demand. All of this suggests a rapid recovery of the global economy will ensue once the Covid-19 restrictions are finally lifted but – and it is a big ‘but’ – there are also clouds on the economic horizon. The law of supply and demand tells us that when demand increases so generally do prices.

Following the first Covid-19 restrictions in March 2020 the price of Brent Crude, a bell-weather for the oil market, dropped to $20 per barrel. In May of this year Brent Crude has shot up to $70 per barrel, though this is well short of its historic peak of $147 in July 2008.

Increased demand generally, and demand more specifically for metals and minerals required for the prospected green energy revolution, are increasing. The price of iron ore has risen from $94 per tonne 12 months ago to $237 per tonne. The price of copper, absolutely necessary to the electrical goods industry, has doubled over the last 12 months to $10,700 per tonne. Other metals such as cobalt, nickel, lithium and rare earth metals are also seeing a huge increase in demand due to the needs of electric cars and electronic components for the telecoms industry.

What is of even more concern is that 75% of these essential metals and minerals are in the hands of three major producers. The Democratic Republic of Congo, nor known for its political stability, is the source of 70% of the world’s cobalt and rare earth metals, 90% of which is refined by China. There are other pressures on the UK economy which have surfaced during the pandemic. As more people choose to spend more time working from home so the broadband network becomes critical. To build and maintain this network requires not only hardware but telecoms engineers – and they are in high demand at the moment, which means they can bid up wages and create further inflationary pressures.

However, the Chancellor of the Exchequer has already signalled an increase in taxes once the economy is restored to relative health, so the fears of raging inflation are probably unfounded as the government has the tools to damp down any surge in demand and prices. Nevertheless, this will require a fine balancing act to avoid depressing industries, particularly exporters.

The shape of the economy will change dramatically in the next few years. Some areas of the economy have taken a hammering and some may never recover. This will necessitate a programme to redeploy people from such as High Street retail to other roles and I doubt that a laissez-faire approach will suffice. It will need government intervention to retrain people for the demands of a future which is not yet completely clear.

We are not out of the Covid-19 woods - indeed globally it has a long way yet to run - and the economy, when it does finally settle into something like normal will be very different to that of 2019.

The Observer
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Bank of England (
International Energy Agency (
Trading Economics (

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