A couple of days ago Andy Haldane, supposedly the most enlightened member of the Bank of England Monetary Policy Committee, said in a speech:
There is a debate about which letter of the alphabet will best describe the path of the economy, with some scepticism about the V-shaped scenario path in the Bank's May Monetary Policy Report (MPR). It is early days, but my reading of the evidence is so far, so V.
In effect, he said the U.K. economy would bounce right back from coronavirus and the long term impact would be limited.
Let me be clear, I would love it if Haldane was right. But, I am absolutely sure he is not.
Right now more than 900,000 business have had government financial support to hopefully survive Covid. That's well over half of all trading companies in the UK.
9.2 million people are on furlough (although that may come down a little this weekend).
And 2.5 million are receiving self-employed income support.
So what Andy Haldane is seeing is the evidence that government support can be amazingly effective.
But there remain two issues that he appears to be ignoring. The first is that the business support will end - and after the losses that they have suffered this will leave many businesses massively under-capitalised for the recovery. And as I have said from the outset of this crisis, that is when the crunch will come. The biggest business killer is over-trading - when businesses fail because they overstretch themselves in proportion to the financial resources that they have available to them. This situation will occur time and again during the recovery.
Second, he's ignoring the swathes of job losses now already happening despite support as businesses no longer see any hope that their business models are viable. He only has to read the papers to find evidence of these. We are already in a situation where, unfortunately, tens of thousands of people are losing their jobs - and that's just the announced ones. But this appeared to be ignored by those who wish to believe that we will recover from all this with no problem.
The naivete of those who think that we'll have a V-shaped recovery might be one of the biggest dangers that we face right now. I'm expecting Sunak to be high on the list of those saying he does, next week.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
I think the only V we will see is the two-fingered (insult) variety from the Govt. towards everyone in this country bar themselves and their backers.
Craig
The Bank of England is duty bound to forecast a V shaped recovery, to do otherwise would suggest that they are pursuing the wrong policy….. or a direct criticism of Government policy. Although, if it weren’t so sad, it is quite amusing to see everyone tying themselves in knots to justify such optimism.
Andy Haldene enlightened? When stood next to Andrew Bailey, yes! Actually, I see him as a man that likes to get noticed so is more interested in the radicalism of his ideas than their veracity. You need people like that in an organisation like the BoE but don’t expect too much.
Agreed
Things must be really bad – because all I see is denial driven by the fear of panic setting in.
The speech has some nebulous data around reopening of non-essential shops saying early indications are footfall and spend were at pre-Covid levels. I find that astonishing in and of itself as a lot of people I speak to are extremely wary about in person shopping still.
His one sentence about hospitality:
‘Looking ahead, the opening of pubs, restaurants, hotels, cinemas and other hospitality outlets on 4 July will
provide further impetus to spending. My own market intelligence suggests considerable pent-up demand.
Together, these categories represent around another 10% of consumer spending. Initial reports from
businesses in these sectors, including from the Bank’s Agents, suggest advance bookings are brisk.’
Seems like pure fantasy to me. These outlets all have to implement social distancing, advance booking can be as brisk as they like, but if you’re maximum capacity is half of what it was pre-Covid you aren’t going to survive long without support.
At no point did he even mention localised shut downs like Leicester and the erosive effect on confidence that will have either.
It seems to me the government and the BOE are banking on everyone ignoring social distancing and us all pretending it’s not a thing. Then if there’s a significant second wave they can blame the public for not obeying the guidelines they’re hoping we don’t really follow.
Agreed
Now if Andy Haldane had said it would be a V-shaped recovery where the “V” stood for Viagra (government spending support) he would have been closer to the mark!
🙂
The HEI sector is just shedding staff as fast as it possibly can, as you noted some time ago Richard. It’s so shockingly short sighted.
I am aware….
The 6,000 a day job losses recently announced if continued will make BJ’s recent ‘build,build build’ slogan and £5 billion so called infrastructure investment completely paltry for what is required to stem this haemorage of jobs as you have so rightly warned about. let alone where the skilled workers are going to come from from an already stretched construction sector not to mention other technological skills recquired to drag the UK economy into the mid 21st Century to cope with pandemics and climate change.
Re overtrading.
Its not the overtrading its the banks calling the overdraft in.
If the banks are told not to do this there still could be hope.
Have we seen the correspondence between the banks, BOE and Government?
I suspect there will be very little tolerance
Of the business plans that I have seen (47 in UK across a range of sectors) the average job loss is 40%. V shaped recovery? Phooey ! By contrast mainland Europe is far better. So, there will be a further decline in UK employment for those companies that have widely implanted in the mainland.
That is grim
There aren’t enough letters to describe the shape. So I think they say the letter and the font!
Most fonts have the gradient the same on the way down as up on a V, but some are almost straight down and a gentler gradient up (MV Boli).
Then again they maybe mean font Wingdings where V is a cross!
For what it is worth I can imagine the recovery is going to start as if it is a V but will turn into a tick gradient.
The debate probably should be about how far up the v before the gradient drops to a tick gradient.
I would think between a third and a half. (Sorry I can’t draw what I mean here)
But we get it
And you’re right
Of course we bounce back a bit
But then it will be very low thereon
[…] Cross-posted from Tax Research UK […]
US jobless figures for the second month running massively surprise, much less than expected. So there is optimism. Clearly it can be derailed by a second wave but we are seemingly moving closer to a vaccine when we can hopefully put this behind us and get back to some semblance of normality
The US already has that wave
Your hope is premature, I suspect