Economy

It is an uptick so small that it could almost be comic, but the UK economy started to grow in May: by 1.8 per cent following a 20 per cent slump in April. Office for National Statistics figures out today show that, even in lockdown, surging online retail sales - coupled with signs of a recovery in construction - show a small increase in GDP. The big question is what shape we can now see: a L, a Nike swoosh or a sharp V? Reopening the economy can only go so far: tackling people’s fear of Covid-19 is key for a V-shaped recovery Today’s increase suggests growth is  - every so slightly - on the up, easing doomsday concerns about an L-shape (that is, no recovery at all).

Today Boris Johnson launched his ‘new deal’ for Britain – billed as an economic recovery plan to follow the Covid recession.  It sounds positively Rooseveltian. It sounds like a new deal. All I can say is that if so, then that is how it is meant to sound and to be, because that is what the times demand – a government that is powerful and determined and that puts its arms around people at a time of crisis. What has changed is the PM’s political positioning, away from the market economy and towards state intervention But were the announcements really a 'new deal’ – or a new anything? The vast majority of the announcements were not new but manifesto promises from the 2019 election.

It was inevitable that the wave of destructive rioting and looting that has swept through cities that are almost all governed by progressive Democrats, triggered initially by outrage over the sickening death in police custody of George Floyd, would be compared to the American urban riots of earlier generations. But the parallels miss profound differences in the underlying economic and social dynamics. The Detroit and Newark riots of 1967 and the Los Angeles riot of 1992, for example, took place in cities suffering from the effects of deindustrialization. Los Angeles is not often thought of as a major manufacturing center, but Southern California had a flourishing aerospace industry that went into decline following the Cold War.

Putting the UK into lockdown was only going to send growth in one direction: down. While today’s figures from the Office for National Statistics were expected, they nevertheless confirm that the UK has experienced its largest monthly economic contraction on record. The UK economy shrank 20.4 per cent in April. Combined with March’s GDP drop (now the second largest fall since records began), the British economy is a quarter smaller than it was in February. Putting these figures alongside other monthly slumps makes for stark comparison. Hits taken for additional bank holidays and for the pain experienced during the financial crash barely compare to what’s happened in light of the shutdown of Britain’s economy.

The global lockdown has seen economies shrink and unemployment soar across the world, pushing governments to borrow at rates never seen in peacetime. On Wednesday, the OECD published country-by-country estimates for the economic hit – and its projections for the UK are some of the worst. Under the scenario of no second wave (that is, assuming countries won’t need to lockdown again this year), Britain’s economic downturn is forecast to be the worst in the G7, and fourth-worst in the OECD, with an 11 per cent fall in annual GDP. In the case of a second wave, prospects still aren’t great: in the G7, Britain’s 14 per cent downturn is on par with Italy and France, and the country retains a dismal place in the OECD line-up.

What exactly is an apprenticeship guarantee? That’s the major question to come out of Wednesday night's Covid press conference after Boris Johnson committed to offering an apprenticeship to all young people:   I think it is going to be vital that we guarantee apprenticeships for young people. We will have to look after people across the board, but young people in particular, I think, should be guaranteed an apprenticeship. While the commitment was there, the detail was not. Is this really a guarantee for all young people? In the first quarter of this year, over 350,000 people aged 16 to 24 were unemployed (excluding those in full-time education); another 1.5 million aged 18 to 24-year-olds were registered as economically inactive.

'It’s the economy, stupid!' With those now famous words, the Democratic strategist James Carville summarized the 1992 election between President George H.W. Bush and Arkansas governor Bill Clinton. Carville captured a fundamental reality. From 1932 to today, only three incumbent presidents have lost their reelection campaigns: Herbert Hoover in 1932, Jimmy Carter in 1980 and H W Bush in 1992. Each man fell thanks to economic woes. As of March 1, 2020, Donald Trump’s reelection campaign was also all about the economy, stupid. Trump’s 'Keep America Great!' economic record had been very strong. The stock market had hit record highs, with the S&P 500 reaching nearly 3,400 and the DJIA almost topping 30,000 in mid-February.

Who is the proposed new $3 trillion stimulus package designed to help? If enacted, the bill — which narrowly passed through the House yesterday, with a break in both party lines — would follow from the $2 trillion package passed in March. But it’s not getting past the Senate, at least not in its current form. Despite broad consensus that the first stimulus wave for businesses and families was a necessary emergency measure to help get America’s economy through the COVID crisis, this next round has become increasingly political, looking more like election postering than a thorough plan for the next phase of the pandemic.

Just how bad will the Covid economic hit be? Today’s figures for the first quarter of 2020 show Britain's economy shrunk by two per cent, but that takes into account just a few days of lockdown (and suggests that the recession started some time before). The March figure is more like it: despite only formally being in lockdown for eight days in March, the UK economy contracted 5.8 per cent that month alone. As Capital Economics puts it ‘in just one month the economy has tumbled by as much as it did in the year and a half after the global financial crisis.’ Yet some responses to today's figures reveal a worrying degree of optimism about the future.