You could almost hear the glee in the voices of certain newsreaders yesterday as it was revealed that under a Tory Government, Britain’s output had fallen by more than 20 per cent in the three months ending in June.
That not only plunges us into the worst recession since records began but makes the UK the worst-performing economy among the G7 richest nations.
Yes, it is deeply disturbing that lockdown has taken such a terrible toll and Chancellor Rishi Sunak is right to warn of tough times ahead. But there are reasons for optimism.
As the pandemic retreats, our remarkably resilient free-market economy is already showing signs of a bounce back — which is just what the Bank of England and Sunak have been counting on.
Yes, the nation may be about to enter a recession far deeper than that which followed the financial crisis of 2008, but we were prepared for it to some degree.
As the pandemic retreats, our remarkably resilient free-market economy is already showing signs of a bounce back — which is just what the Bank of England and Sunak have been counting on. Pictured: Chancellor Rishi Sunak puts up a ‘eat out to help out’ sign in a shop
The Treasury took extraordinary steps to ensure that as many jobs as possible were preserved and that even the smallest of enterprises had access to cheap and guaranteed bank credits.
Just over a decade ago, it was the big banks and the financial system that were bailed out by the taxpayer. This time, the Treasury has set caution aside and done its best to put citizens and small and medium-sized businesses first.
Uplifting
Sunak said it best himself in response to the alarming new data, reassuring the public that ‘nobody will be left without hope or opportunity’.
In recent weeks, amid the doom-laden forecasts of recession and a jobs catastrophe, what was easily missed is that recovery actually began in May, as Britain emerged warily from total lockdown.
Phoenix-like, output started its climb back, rising by 2.4 per cent, and in June gross domestic product (GDP) actually climbed by 8.7 per cent, a much better performance than most City economists predicted.
The reality is that even with more than three million people still on furlough and much of the workforce working from home, the UK’s recession has been and gone.
This is not like the Great Depression of the late 1920s and 1930s when the slump lingered through to the 1940s and World War II.
Indeed, the speed with which some sectors are returning to normal is uplifting. The shock in April when it was revealed that just 4,321 cars were sold across the UK was palpable. The latest data shows a very different picture.
New-car sales soared in July to 175,000, up 11 per cent on the same month in 2019. Admittedly, there is pent-up demand from lockdown but the consumer confidence needed for people to buy an expensive item is impressive.
Meanwhile, incentives to get the economy moving again in the Chancellor’s summer statement look to be working.
Much of the hospitality industry has been reinvigorated by Sunak’s ‘eat out to help out’ package, with some restaurateurs overwhelmed by bookings. In its first week, 10.5 million meals were claimed for under the scheme.
The Royal Institution of Chartered Surveyors reports a house-buying boom as a result of the stamp duty holiday on all homes costing up to £500,000, in a clear demonstration of how consumer and business-friendly taxation is supporting the economy.
But there is only so much government can do. Some employers have shown great complacency about scaling down home working and bringing people back to offices.
NatWest says its employees won’t return until January, while Google is letting staff work at home until July 2021.
The anecdotal view of many of Britain’s corporate chiefs I talk to is that home working has made no difference to productivity. I disagree.
Rebound
Elsewhere in Europe, the return to the workplace has been far swifter and this may be a factor in the better economic statistics for France, Italy and Germany.
The latest data suggests that across the economy, a combination of furlough, home working and social distancing in workplaces has been calamitous. Output per worker collapsed almost 20 per cent in the three months to June compared with the first quarter of the year, and 22 per cent year-on-year.
Economist Howard Archer of the EY Item Club (an economic forecasting group which uses the Treasury economic model) noted the risk is that Covid-19 over the first half of 2020 ‘has a lasting negative impact on productivity and UK growth potential’.
In other words, getting people back to their workplaces is critical if we are to continue our progress in recovering the £400 billion of lost production in the first half of the year.
That is not to dismiss the performance and ‘can-do’ attitude shown by the UK’s very best corporations.
Putting aside Russia’s claim to have developed a vaccine for SARS-CoV-2, Britain’s life-sciences companies are among the world leaders in developing a properly peer-reviewed, tested and trialled vaccine.
Along side Oxford University’s Jenner Institute, one of the UK’s largest companies AstraZeneca is working on producing the first effective coronavirus vaccine
AstraZeneca, working with Oxford University’s Jenner Institute, is well on its way to producing the first effective vaccine. When it ran out of patients to test in the UK as Covid-19 subsided, it moved the testing programme to Brazil and South Africa.
Together with Britain’s other world-class pharma company, GlaxoSmithKline, it has also set up production facilities across the world.
As soon as the vaccines gain regulatory approval, tens of millions, if not billions, of doses can be produced.
The contribution of our great research universities to the recovery reminds the rest of the world that we are more than a country of cafes, fast food joints and small shops.
The UK has excellent pharma, high-tech, creative and financial services industries. Production of Britain’s oldest hygiene brands, such as Dettol, Lifebuoy and Dove, has been ramped up worldwide in lockdown and will be big winners for UK earnings as Covid-19 underlines the value of basic sanitation.
There has been much debate about the shape of Britain’s recovery. The Bank of England’s chief economist Andrew Haldane has encouraged the idea of a ‘V’ shape — a quick rebound.
Willpower
Britain’s open economy and dependence on the service sector could make that difficult. Heathrow’s role as a world entrepot is still limited by travel restrictions that make it difficult for the UK’s engineers, architects, consultants and investment bankers to secure new orders and work with overseas clients.
But while the economy was 17.3 per cent smaller at the end of June than at the start of the year, early data for July suggest it could be just 10 to 15 per cent smaller by the end of that month.
There has been much debate about the shape of Britain’s recovery. The Bank of England’s chief economist Andrew Haldane has encouraged the idea of a ‘V’ shape — a quick rebound
So in just two months, a third of the slowdown has been recouped — and that with schools and universities closed and many people on the beach or working at home.
The first fruits of recovery are there to see. It may still feel very uncomfortable for another year or so, but with further monetary support from the Bank of England and tax breaks from the Chancellor, an end could be in sight.
The slump will leave scars in the shape of fewer jobs for 18 to 24-year-olds and abandoned premises on the High Street. But with the right inducements and willpower, there is every reason to believe there is a path back.