The UK economy is like "a coiled spring", set to release lots of financial energy, according to Andy Haldane Chief Economist, at the Bank of England.
Consumer confidence will surge back, the economy will be firing on all cylinders. Success with the vaccination programme and an easing of lock down will assist the process.
The change in sentiment is likely to be rapid. People are desperate to get on with their lives. Pubs, sports and cinemas will benefit. The Bank believes household and business balance sheets are in good shape. Consumers have been forced to reign back spending on leisure, entertainment and holidays. Many households have strengthened their finances and have money to spend. "The recovery will be a year to remember, after a year to forget." says Haldane.
The leader in the Times today takes up the positive theme. "Remarkable progress with vaccinations could set the stage for a powerful recovery this year, fueled by businesses and households flush with cash." Businesses are sitting on an £100 billion cash pile. British households have amassed an astonishing £250 billion of cash apparently.
The bullish outlook tends to overlook the rise in unemployment to 5% by the end of last year. Almost two million are out of work. Three million are claiming universal credit and four million are furloughed. The latest ONS data suggests UK GDP fell by 9.9% last year. The worst fall, since the year of the great frost, in 1709.
Manufacturing output fell by 10%. Construction output fell by over 12%. Service sector output fell by 9%. The hotel and restaurant sector almost halved in terms of output. The continued lock down in the first quarter suggest a further modest set back in the economy, to start the year.
The Chancellor will have little option but to extend the furlough scheme and introduce additional business support measures later into the year. Any thoughts of tax hikes should be put aside for the moment.
The Bank of England is forecasting growth of 5% in the current year. NIESR has a more modest 3.5% on the ticket. We expect the estimates for last year to be revised up. The 9.9% estimate is based on an amalgamation of three measures of output. Details of which, have not yet been published. The GDP(O) measure reports the setback last year, was nearer 9% than 10%.
Either way the prospects for a strong recovery, are in place this year. The vaccination programme has been a huge success. We expect the lock down to ease, as we move into Easter. The out turn for the year could even surprise the optimists in the Bank. It will be "a year to remember after a year to forget" ...
The Saturday Economist
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