ALEX BRUMMER: Economy will be limited to Easter, but faster it will be cut back, faster tax revenues will flow back to the treasury
- The damage to the output turns out to be much less than most predictors had predicted
- Chancellor Rishi Sunak must avoid a precipice from Covid on March 31
- The expensive leave scheme, the VAT deduction for catering and business rate deduction must be expanded to restore the boosters
Workers’ critics from Boris Johnson’s government are pleased that the UK was among the worst countries for pandemic deaths and the worst country in managing the economic impact on businesses and households.
The economic damage was devastating during the first wave of coronavirus, and the current Covid wave is sure to leave deep scars.
But the damage to output turns out to be far less than most forecasters had predicted, and there’s a good chance that the headlines that those speaking Britain – the first double dip since the 1970s – dream of can be averted.
Holding his nerves: Chancellor Rishi Sunak must avoid a Covid abyss off the cliff on March 31
The GDP, or total output, for November, when much of the nation was in very restrictive Tier 4, shows that national income has fallen 2.6 percent. Any drop in production on that scale is alarming. Tragically, jobs have been lost in the pressured retail and hospitality industry.
Nonetheless, this outcome far exceeds the forecast consensus decline of 5.7 percent, and many forecasters did their best to revise the bleakest of their projections.
What the data suggests is that businesses and consumers have become more skilled at living, working and spending in a pandemic. The economy has also been propped up by a massive fiscal injection estimated at £ 280 billion by the end of this financial year in April.
That’s before we think about the impact of the Bank of England’s massive quantitative easing – buying bonds – which aims to keep interest rates low and make it easier for businesses and for that matter the government to deal with the mounting debt. to manage.
Behind the better-than-expected performance hides robust results from manufacturing and construction.
Manufacturing production rose 0.7 percent in November and has now been up for seven months in a row.
Despite the economy’s image as consisting of coffee shops, hairdressers and rock artists, we still make things and remain the 12th largest manufacturing economy in the world.
If green projects like Britishvolt, now a partnership with Siemens PLC, come through, we could even see a revival. The real star of the show through the pandemic turned out to be construction. City centers may have become ghost towns.
But we know from the homebuilders’ results, the Halifax house price index and strong mortgage demand from several UK banks that construction has hardly paused. Indeed, it is the only sector of the economy that has scraped its way back to pre-Covid levels, up 1.9 percent in November.
So what about services, which are responsible for nearly 80 percent of the output? While large parts of the services were forced to close due to Tier and lockdown restrictions, the decline was only 3.4 percent.
This is despite the horrendous 44 percent drop in accommodation, primarily hotels, and the 63.6 percent drop in dining and pubs. As a result, services and retail have quickly adapted to online commerce.
This has become evident in recent days with powerful results reported by companies that have embraced the digital economy, including AO, Next, Asos and Just Eat Takeaway. One of the most frequently asked questions this year is why has Britain outperformed its peers?
One reason is the UK’s heavy reliance on services of all kinds from architecture to theater and Premier League football. It’s all about personal contact.
But there is another very plausible explanation. The way the UK measures output is different from that of our competitors.
The Office for National Statistics includes public services in its output numbers, which means that the closure of schools and the lag of non-essential medical procedures added to the downward pressure on GDP.
Remove this from the data, as Ben Broadbent of the Bank of England has pointed out, and the UK would be in line with the rest of the advanced world.
None of this should allow for complacency. It is becoming increasingly clear that the economy will remain under strict restrictions at least until Easter. That is why Chancellor Rishi Sunak must avoid a Covid abyss on March 31.
The expensive leave scheme, the VAT deduction for catering and business rate deduction must be expanded to restore the boosters.
The faster the economy is brought back, the faster the tax revenues will flow back to the treasury.