The FT has this morning published its annual forecasts based on a survey of 90 economists. I thought I would offer my view on key variables.
Growth
Low. Maybe one or two percent at most, with a real risk it could be negative. It will almost certainly be behind every other major economy because of Covid mismanagement and Brexit. On this conventional criteria it will be a bad year.
Unemployment
This will increase, potentially quite significantly. Unemployment data is currently suppressed by furlough. As with so much else in the UK, some honesty might help. Real unemployment of five million remains possible as many underfunded businesses, third sector organisations and even local governments face significant risk to their survival and will make people redundant. An increase in micro business activity, much if it illicit, will offset this to some extent.
In such a weak economy there should be little inflation risk. Brexit is the obvious threat. There aren't tariffs, but there are costs. The economy is so weak that the opportunity to pass costs on will be low. Business failure is much more likely than price rises as a result. An economy that could afford a bout of inflation would be a better option. We have not got that economy.
Deficit
The 2020/21 deficit will come in at around the £400 billion previously forecast. That for 2021/22 will be much higher than the government has forecast. They suggested around £100 billion. I think a figure around £300 billion much more likely. The absence of tax receipts will still be apparent. Those due for deferred payment from 2020/21 will be hard to recover. If business failure is at the rate I expect losses on loans through banks guaranteed by the government will make a significant contribution to the deficit. And so will the cost of unemployment and the recovery of the NHS impose significant pressure. The NHS will only survive if substantial pay increases are offered because of the stress of post-Covid working.
Interest rates
These will remain at an official rate of 0.1%. Effective negative rates will be delivered via quantitative easing.
Government financing
The government will continue to avoid making any demand in financial markets and will fund its deficit entirely by QE. So, expect the Bank of Balance Sheet to expand, considerably, in 2021. No one will be surprised. There will not be a run on the pound as a result.
Exchange rate
The pound will fall as low growth, Covid isolation and Brexit costs all hit in varying ways. The offset will be inward investment, but of a vulture capital variety to but cheap assets, as opposed to creating new real investment opportunity.
Government economic policy
Sunak will try austerity. He will fail to deliver it. Government popularity will fall as a consequence. There will be several revisions to policy as the year progresses. The absence of real policy and the reality that government is simply in reaction mode, unable to command events because its dogma so strongly conflicts with real world need will become increasingly apparent.
2022
A system of reckoning will come when it is appreciated that financialised neoliberalism has come to an end and a new economic reality must be faced. The thinking on this issue will continue in 2021 but neither government or opposition will truly embrace it. 2022 may be the crunch moment as the failure to manage 2021 becomes apparent on so many fronts.
Summary
The government, its policy, and reality will be in continual conflict in 2021. Reality will win an easy victory over policy. More time to implement real change will have been lost. The environment, businesses, NGOs, government agencies and, most of all, real people will pay the price. QE will leave a scar of rapidly growing inequality. Social stress will increase significantly. Some of it will not be containable.
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I winder if the UK, or at least the rUK could be heading for ‘Failed State’ status? Possibly accompanied by the USA.
To rephrase what I said in another forum, the failure pf the UK watched no doubt with great interest abroad might act to change politics and priorities in the Global North
This makes for interesting reading.
I think Government policy will be to divide and conquer as per usual amongst the haves and have nots. It will always find scapegoats and there are still enough easy to mislead people around.
Agreed. It has worked since 2010 so, they’ll keep up with that strategy aided and abetted by the lamestream media.
Craig
[…] that political forecasts are even more of a mug’s game than economic forecasts, and having already done the latter, let me risk reputation and offer some forecasts for politics in the UK in 2021. First some […]
Two things you didn’t mention…
1) the chance of a vote of no confidence in the current Govt/BoJo resignation;
2) Scottish election results very strongly backing independence.
What do you reckon are the chances, and repercussions??
I did not do 1, I thought I did do 2
1 would fail: the Tories will get rid of Johnson some other way e.g. 1922 pressure
2, incredibly likely
Very little chance of a vote of no confidence in the government being passed by the House of Commons, given the 80 seat majority.
A very much greater chance of Johnson (known to his family as “Al” I understand, not that made-up “Boris” persona) resigning or being pushed now Brexit has been “done” a second time. The Conservative party machine might want to get the pandemic out of the way first before they install a new leader, but things may get so bad he has to go anyway.
Would you be willing to put your money where your mouth is on some of those forecasts, say GDP or GBPUSD?
Personally I think you haven’t actually bothered to do any analysis on your forecasts and are just plucking things out of your backside to suit your “I hate the Tories and everything they do is bad” mindset.
I don’t gamble
And I’d suggest I am considerably more objective in my analysis than you very obviously are
Cripes Tony, that’s a really impressive assessment of Richard’s forecasts you’ve made there. What a detailed analysis, backed up by really impressive research. A couple of cheap, stupid insults because Richard is pointing out the numerous failures of this government.
Typical of today’s right wing. Next you’re going to tell us that Brexit will be a tremendous success, any other PM would be doing as badly as Johnson, and that Richard and others like myself must ‘really hate this country’.
🙂
Now c’mon Tony lad, today’s blog is summary of a lot of facts and figures that have been put together on this topic throughout this year and before. We’ve seen the trends and these forecasts (for it is OK to forecast you know Tony – the City will tell you that – and how!) seem to be in line with what some anticipated.
My brother is a long distance lorry driver out of Ireland. The paperwork has got bigger over night – there are more checks and more sheets of paper that have to be read. He also says that those lorries going direct from Ireland to Europe are mandatorily subject to searches for illegal immigrants than never before if they have to come through the UK.
He has also been approached for the first time by port officials asking him for cash for ‘special favours’ whist passing through. He could not believe that! He got clamped twice near Heathrow having been told on both occasions by officials that he was allowed to park where he was parked. You’ d think that authorities would increase the parking capacity to cope with the slow down wouldn’t you. He’s thinking of moving to France now. Basically the costs he incurred for this wiped out his earnings for the trip!
Whatever one might say about BREXIT, what is certain is that things are now slower when it comes to getting things in and out of the country. And who knows – we might also see an increase in corruption too, from port officials to rogue clamping outfits.
None of this was mentioned by those touting Leave BTW. I wonder why?
Happy New Year ‘Tone’.
PSR, at which ports was he asked for payments by officials? And who did he make the clamping payments to? If they were people connected to the officials who told him he could park in a certain area, that is also blatant corruption.
Looks like the corruption we’ve already seen from this government in handing out juicy PPE contracts to party donors and personal friends is spreading fast, doesn’t it?
So as well as having increased costs and delays brought about by legitimate increases in border checks, you will now have to start factoring in the costs brought about by corruption. If there are any Leavers reading this, congrats; this is what you’ve helped bring about. And if you were mad enough to vote for Johnson’s government, you are doubly responsible.
“Sunlit uplands?” More like a cesspit.
You left out sanctions being imposed by the EU because Johnson breaks a term, or terms, of the Brexit trade agreement. Given Johnson’s penchant for lying and inability to think through consequences of his ideas this would appear highly likely. Scapegoating others can only carry him so far. Now he has made agreements with penalty clauses!
Apologies…
Here’s one bureaucratic consequence of the Brexit trade agreement that wasn’t thought through by the Johnson administration:-
http://mikenormaneconomics.blogspot.com/2021/01/akex-bowden-dutch-bike-part-dealer.html
Amazing, isn’t it?
https://www.bbc.co.uk/news/business-55530721
Not really surprised.
Brexit is a bit like voting to abolish electricity. There are many ‘obvious’ consequences but an awful lot of unexpected ones – to the General Public at least.