The FT notes this morning that:
The latest UK economic data has been significantly better than economists expected, suggesting households and companies have been more resilient to the latest lockdown and Britain will climb international economic performance league tables in the months ahead.
The reports appear to emanate from the Bank of England. Almost all indices are, apparently, moving better than expected. Given that some think I am a doom-monger I thought I should note the fact.
Doing so does not change my opinion on the risks we face. That we are getting better at lockdown is unsurprising. It would be surprising if we were not. And treat me as cynical if you wish, but I rather strongly suspect that the relatively small improvement that is being celebrated could be entirely engineered within the ONS by them simply assuming that large parts of public services, like teaching, remained productive during this lockdown when during the first lockdown it was assumed that they were not. How much has really changed then is hard to tell.
What is surprising is that GDP may, according to these reports, not reduce greatly because of lockdown, and despite a significant increase in the number of people furloughed will bounce back quickly.
This may, of course, be entirely true. I will be pleased if it is. But the reality may be otherwise. GDP has survived because of government support. If that is withdrawn as lockdown ends the potential for things to go wrong remains very high.
I would like to be wrong. But I still think economists have forgotten that cash is king, and it is cash flow that will kill as business fully reopens, furlough ends and loans have to start being repaid. The real economy's dependence on QE is bigger than most think right now, is my suggestion.
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:
I think you’ll see a mixed picture when lockdown ends:
– there’ll be a general economic surge in activity and high net GDP growth as things reopen and people with money seek to spend it
– there’ll be some businesses and individuals that have been hanging on via furlough etc until reopening, and when they do reopen market conditions and trends will have changed and their business may no longer be viable
– there’ll be many individuals and businesses that have, similarly been hanging on, but when support ends and debts get called in, they’ll be insolvent.
– there will be some businesses that will adapt and do really well out of it
– big shopping centres and big high streets will be thrown further into chaos – but you’ll probably see most of the closures happening next January.
– city centre office districts and many supporting businesses will be ghost towns. Conversely – suburban areas and smaller high streets could do well from people WFH and shopping more locally
– vultures will be circling and will pick up some absolute bargains from collapsed enterprises
I came across a couple of interesting articles in The Guardian this morning which raise other questions in regard to economic recovery and the financing of the real economy
https://www.theguardian.com/business/2021/mar/28/liberty-steel-and-its-3000-workers-feel-the-heat-after-government-rejects-loan-plea
This one from Richard Partington is particularly good I think
https://www.theguardian.com/business/2021/mar/28/industrial-strategy-uk-build-back-better-covid-government
I think the clearest way to interpret this, is as further evidence that economists demonstrate (day-in-day-out) that economics simply doesn’t understand how economies work. See also your other thread, ‘How economics ruins economies’. The problem is, economists are simply incapable of aclnowledging how little they know, and how inadequate the tools they use in their crude, over-mathematised, statistically feeble, epistemologically weak tool-kit.
I don’t understand why the government has to go through the QE process. Wouldn’t it be simpler for it to simply borrow money from the Bank of England?
Yes
But EU law and international convention plus the pretence of Bank of England independence has prevented that to date