In previous outlook reports, our outlook for 2021 was based predominantly around the ‘Good Recovery’ scenario which sees economies reopening throughout the year as restrictions are lifted and vaccines, along with a natural immunity, allow many countries to reach herd immunity by the second half of the year. 

It continues to be our single-most-likely outcome at a 40% probability, however it has dropped 10% since the previous quarter, making room for upside risks in inflation. Why has it changed?  

To date we have been relatively sanguine about inflation – it has featured as a scenario in all our forecasts for the past year, but generally classed as an odds-against risk, at least in 2021. That remains the case in our single-most-likely scenario – ‘good recovery’ - this time too. In that world, we take a relatively optimistic view about the elasticity of aggregate supply. 

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