There are not that many positives to be had these days amid the ongoing train crash in public policy, but perhaps surprisingly one of them is in the economy.
This is bouncing back much more rapidly than anyone dared hope, such that the Bank of England’s last published central view that it would take until the end of next year for the economy fully to recover from Covid lockdown – widely thought unduly optimistic at the time it was issued – is beginning to look a little on the cautious side.
Much depends, obviously, on the progress of the virus and the Government’s response to it. There is still plenty of room for disappointment. It’s also very hard to know what’s going to happen when the Government’s various support schemes come to an end. The degree of fiscal stimulus currently being applied to the economy is quite without precedent outside a major war. How high is unemployment going to rise once this begins to fall away?
There is a triple whammy of negatives approaching – the end of Eat Out To Help Out, the scaling back of furlough support, and perhaps equally important, the end of the good weather. Glorious sunshine was one of the few things that helped sustain us through the madness of the past six months.
But for now, things still look pretty good. Consumer spending is back to normal, and activity in the lockdown crushed hospitality sector is also at pre-Covid levels. Business surveys point to growing confidence and economic rejuvenation, house prices are rising, factories are whirring again, and jobs are being created in the online world almost as fast as they are being lost from the high street.
Let’s take the good news in turn. Activity seemingly fell by a fifth in the second quarter as a whole, but it grew 8.7pc in June – a rebound that appears to have further strengthened in July and August. In any case, the volume of retail sales in July was 3pc higher than the pre-pandemic level of February this year.
Internal analysis by HM Treasury suggests that the Government’s discount dining scheme, offering consumers meals out at half price three days a week, has spurred the hospitality sector to the scarcely believable outcome of higher activity in August than the same month last year.
Admittedly, this must be partly down to staycations, such that a suspicious mind, searching for reason in the otherwise unfathomable nonsense of the Government’s quarantine policy would think it deliberate so as to force citizens to spend their holiday pounds at home rather than abroad.
Be that as it may, there has been only a relatively small shift in the pattern of spending away from weekends to Mondays, Tuesdays and Wednesdays the scheme applies to, suggesting that the bounceback in hospitality may be more persistent than generally assumed.
Repeated local lockdowns are obviously not going to help, but let’s take a positive view and hope that the psychotic phase of the Government’s Covid response is now largely over, and that with better treatments and testing, a degree of sustained normality is at last beginning to establish itself.
Outside hospitality, manufacturing has also come back strongly, and perhaps oddly, so have housing transactions and house prices. Both phenomena may be down to pent up demand, hitherto denied an outlet by lockdown, and might therefore prove temporary. Housing has also benefited from the stamp duty holiday on purchases up to £500,000. But again, let’s be generous and assume the V-shaped recovery in these sectors the Bank of England and the Treasury hope for.
However – and when it comes to the economic outlook, there is always an however – there is one rather big fly in the ointment: rising unemployment. And not just because of the want it imposes on those affected, but also because of its depressing effect on demand in the round. Rising unemployment creates a vicious circle of reduced demand, declining economic activity and business investment, and therefore growing joblessness and further deficiencies in demand.