Large banks in Australia, the UK and the US have reported only moderately higher problem loans since the start of the pandemic. However, we expect loan losses to accelerate in the months ahead as government stimulus and bank forbearance measures are withdrawn or scaled back.

Increasing infection rates across advanced and emerging markets are weighing on consumer demand and stalling positive economic momentum. The recovery in manufacturing activity is also slowing. While domestic travel is picking up across countries, international travel remains weak.

The UK’s growth prospects have weakened significantly, with years of weak productivity growth and tepid business investment exacerbated by the pandemic and the likely effect of Brexit. The government’s already-high debt will increase further during the pandemic. Underlying the economic and fiscal deterioration is a weakening of the UK’s policymaking framework.