The writer, a former member of the Bank of England’s monetary policy committee, is a distinguished fellow at Chatham House

Among the many unusual features of the pandemic-induced downturn is the disconnect between depressed real economies and buoyant financial markets. This is particularly evident in the US, where output fell 9.5 per cent in the second quarter while the S&P 500 index rose by a fifth. This may suggest a huge financial bubble is in the making, or at least a highly optimistic view of a Covid-19 vaccine and treatments. Another possibility is that markets have a better grasp of the economic dynamics of a post-pandemic world than most nervous consumers and governments.

Certainly, markets have been helped by central bank largesse. In March, major central banks reacted forcefully to the possibility of a serious credit crunch with lending guarantees and bond purchases. Such liquidity interventions soothe troubled markets, but they also raise asset prices — potentially into bubble territory. This partly explains the markets’ strength. But it may not be the whole story.