Economy

Despite the political misery for Boris Johnson as he ends the year, he has a big hope: that salaries will boom in 2022. At Conservative party conference in October, he told fellow Tories what to expect. Yes, the country has gone through a phase of economic chaos — and as a result some supermarket shelves have been empty and truck drivers have been hard to find — but this was actually good news, he claimed, because it marked the start of a new, high-pay economic model. ‘We are not going back to the same old broken model with low wages, low growth, low skills and low productivity,’ he boasted.

We don’t yet know whether the Omicron variant will drastically accelerate the spread of coronavirus, or whether it will circumvent parts of the immune system. Nor can we be sure that the ‘light’ coronavirus restrictions announced at the weekend will be enough to combat the new strain. We can be certain, however, that these measures will come with an economic cost that politicians are, at least publicly, understating. Face masks are once again compulsory in shops and on public transport in England, and UK arrivals will need to take PCR tests within two days of landing, isolating until they get their result.

Many are familiar with the old aphorism that in real estate the three most important determinants of value are location, location, location. Things are a bit different in making economic forecasts and predictions, where two variables matter most: accuracy, of course, but also timing. Regarding accuracy: a lengthy list of economists — some quite eminent — have ended up with egg on their faces because of inaccurate predictions and forecasts. In this regard, there’s the observation by the distinguished economist Irving Fisher, 92 years ago today on October 16, 1929, that stock prices had reached 'what looks like a permanently high plateau’. Since the Great Crash occurred two weeks later, Fisher’s timing wasn’t so great either.

How is the Prime Minister’s bid to turn Britain into a high-wage economy progressing? It couldn’t be going better just at the moment, to judge by a survey by IHS Markit for KPMG and the Recruitment and Employment Confederation. In September – data was collected between the 13 and 24 September – there was a sharp rise in hiring, while starting salaries were rising at their fastest pace in the 24 years in which the survey has been undertaken. The number of permanent as well as temporary appointments was high, although the latter fell back from a record high in August. The survey suggests that the jobs market turned in February and has been strong ever since then. Is the boon in wages really such good news for the economy?

So, is the post-Covid inflation panic over? That is how it looked last month, when the government’s preferred inflation index, CPIH, fell to 2.1 per cent from 2.4 per cent a month earlier. We will have the latest news on Wednesday morning, but for the moment it appears that consumer prices inflation hasn’t taken off like we feared. It is a similar story in the US, where inflation fell back from 5.6 per cent in July to 5.3 per cent in August. The fact that house prices have risen so strongly throughout the deepest recession in modern times ought to be a warning sign Yet there are good reasons to suspect that the summer slowdown in inflation is a lull and that a rebound is coming. Just look at US producer prices, which ratcheted up to 8.

The arrival of ‘freedom day’ on 19 July enabled people to return to concerts, festivals, and ditch social distancing, but these rediscovered freedoms did not revive the economy. The ONS said this morning that growth was just 0.1 per cent in July, far lower than the consensus forecast. It was particularly disappointing given the growth seen in the locked-down months of June (one per cent) and May (0.6 per cent). The Pingdemic – and concerns about the Delta variant – cancelled out any animal spirits around reopening. August’s GDP boost is going to need to be much stronger for the more bullish forecasts to pan out Nightclubs reopened and the entertainment sector was up nine per cent, but the end of stamp duty hit real estate.

Job vacancies at a record high, a shortage of 90,000 lorry drivers, farmers complaining about a lack of seasonal workers, care homes complaining about difficulties in recruiting staff — and 1.9 million people still on furlough at the end of June. It shouldn’t be difficult to put these figures together and work out what is going on — even if Lord Adonis, with his usual tunnel vision, has been busily tweeting blaming everything on Brexit. When the furlough scheme was introduced it was intended as a short-term measure to tide over businesses that had been forced to close as a result of Covid restrictions. So why is it still in place when the economy has almost entirely reopened?

The UK economy is rebounding at the fastest rate in Europe, and faster even than the United States: that is the general tone of reporting of today’s GDP figures, which show that the UK economy expanded by 4.8 per cent in the second quarter of 2021. That is compared with 0.9 per cent in France, 1.5 per cent in Germany and 1.6 per cent in the US. But hang on, dig a little deeper and there is something a little odd going on with the figures. Compare nominal and real changes in GDP during the second quarter and it produces the following: UK, nominal growth in second quarter: +3.6 per cent; real growth in second quarter: +4.8 per centFrance, nominal growth in second quarter: +1.0 per cent; real growth in second quarter: +0.

The world of coronomics continues to surprise us. Last summer forecasters warned of a wave of redundancies after the biggest economic crash in 300 years. Peak unemployment — spurred on by lockdowns — was expected to near 12 per cent, ushering in a new era of chronic financial pain and instability for millions of workers. But the Treasury’s furlough scheme has kept the headline figure down. Unemployment has hovered around 5 per cent, less than half the original prediction. The problem this summer isn’t mass unemployment but worker absenteeism. Job vacancies are now more than a third above pre-pandemic levels. There is no shortage of available work, only a shortage of those willing to do it. At the last count, 2.

Could Italy’s triumph on Sunday result not just in a trophy for the azzuri, but a baby boom for a nation with one of Europe’s lowest fertility rates? The anecdotal evidence would support this theory. Nine months after Iceland beat England in a Euro 2016 match, it experienced an unprecedented increase in births. This was the first time the nation had ever qualified for a major European tournament, and close to 10 per cent of its 300,000 population watched the game in person. Spain’s birth rate also shot up 16 per cent nine months after Barcelona won the 2009 Champions League. Yet a new paper from Luca Fumarco and Francesco Principe pours cold water on the idea that sports success euphoria boosts human conception.

At yesterday’s press conference, Boris Johnson announced that his government was shelving plans for domestic ‘Covid certificates’ (i.e. vaccine passports), at least for the time being, although this won’t stop private businesses or venues from deciding to use them.  We also learned today that it won’t stop the creation of a two-tier system (as Lara Prendergast warned months ago) for the ‘jabs and jab nots’. New policies have been confirmed that will allow for the double-jabbed to skip quarantine if they’ve been in contact with someone who tests positive for Covid-19 (with exemptions granted to under-18s as well).

Finally the pandemic fog is lifting and the outlines of post-Covid politics are starting to take shape. While the Government is perfectly capable of generating many more unfortunate headlines by mishandling the Covid exit wave – or indeed, in the case of Matt Hancock, ignoring the 'hands, face, space' rule – it is clear that one key relationship will largely determine its longer-term fortunes. It is that between off-the-cuff scruff Boris Johnson and his immaculately turned-out Chancellor, Rishi Sunak – the man in the ironed mask.

Britain’s economy is growing at the fastest rate in 200 years. Job adverts are 29 per cent above their pre-pandemic levels and employers say they can’t reopen because they can’t find staff. Wages are rising at the fastest rate in ten years. But here’s the question: how much more support does the economy need from the Bank of England’s printing press? Should the BoE stick to its pledge to bring QE up to £895 billion or stop £50 billion short? Its members met to discuss this last month and decided (as they always do) to press ahead — by eight votes to one.

Post-pandemic economic recovery was on the agenda at Holyrood this week, with Scotland's finance minister Kate Forbes in full JFK-style 'ask not what your country can do for you' visionary mode. 'Wherever someone works, and in whatever capacity, if they think that they can serve our country as we face the prospect of rebuilding, this is their personal invitation. Our strength is in our united vision to work together — across party lines, sectors and regions — to rebuild,' declaimed Forbes. A cynic might wonder if 'serve our country' will turn out to mean serving the nationalist interest rather than the national one.

Time is, I fear, running out. Running out, that is, to avoid handing to a small number of multinational corporations our right to buy and sell things. Running out to prevent governments and central banks helping themselves to our savings, by means of negative interest rates. The payments industry is closing in on its target of driving cash out of circulation and instigating cashless payments as the only way of doing business. That, at least, is the conclusion one might reach from reading a report by Worldpay: the Global Payments Report 2021. It claims that cash payments in UK shops in 2020 made up 13.4 per cent of total payments, down from 27.4 per cent in 2019. By 2024, it predicts, they will be down to just 6.9 per cent. By the same year it will be down to just 0.