Julian Jessop 24 June 2020

The economic recovery is already taking shape nicely – and the shape looks increasingly like a “V” after all. Despite this, many commentators are still pessimistic and even eager to emphasise the downside risks. It is time to view the glass as “half full” instead.

Let us start with what we already know. The economy shrank by an unprecedented 25 per cent in just two months between February and April, but it could have been even worse. The Office for Budget Responsibility’s projections for the public finances are still based on a 35 per cent fall in GDP, sustained for a full three months. The Bank of England had warned of a 30 per cent decline.

What’s more, there is now ample evidence that April was indeed the trough, and that activity picked up sharply in both May and June, even while large parts of the economy were still in lockdown. This evidence includes surveys of business activity, such as the Purchasing Managers Indices (PMIs) published by Markit. The handful of official numbers released so far have generally been better than expected too, including a 12 per cent jump in retail sales last month.

Indeed, both the OBR and the Chief Economist of the Bank of England, Andy Haldane, have now acknowledged that the economy is performing less badly than either had predicted. Even the record level of Government borrowing is slightly below the path that the OBR had pencilled in.

Of course, it is still too much to hope for a neatly symmetrical “V”-shaped recovery, where GDP returns to its pre-crisis level as quickly as it fell. But the latest data suggest that the UK economy should get back close to this level much sooner than many had anticipated, and the picture will look far more like a “V” than the “U”, or even “L”, that some had feared.


Indeed, I’d go further and say that an initial “V” is now nailed on. Some people will understandably be reluctant to venture out and spend, even if they are allowed to do so. But the latest polling suggest that a clear majority of the public support the further easing of the lockdown.

In the meantime, some households have been hit disproportionately hard, including many poorer families and the self-employed. Many of those on the Government’s furlough scheme are worried about losing their jobs when it ends. Nonetheless, most households have actually built up their savings during the lockdown. Pent-up demand is therefore still likely to be strong.


Keeping your business open

With the exception of some non-essential shops and public venues, we are not asking any other businesses to close – indeed it is important for business to carry on.

However, you should encourage your employees to work from home unless it is impossible for them to do so.

Sometimes this will not be possible, as not everyone can work from home. Certain jobs require people to travel to their place of work – for instance if they operate machinery, work in construction or manufacturing, or are delivering front line services.

See the full guidance on work.

Many UK SME businesses are misunderstanding what the government instruction is… relating to COVID 19

All companies can carry on working, and the direction is that people should not breach social distancing. So Retailers, Pubs, Restaurants and Businesses that necessitate people to meet, Theatres, Clubs etcetera, should not open.

Remember that deliving your food or product to the customer is not only OK, in many ways for businesses it’s A unique opertunity. First you learn who and where your customers reside and secondly the delivery person, drives afficency as the customer will be available to receive the order.

newspaper journal shopping

You can, however, trade if you can protect the public, your customers and perhaps most importantly, your employees.

Consider social distancing, don’t have teams travelling in the same vehicle. If you can work from home, do so, so clerical duties can continue. (more…)

Kate Andrews

Oxford Economics predicts a quick post-virus recovery – with one big caveat

Oxford Economics predicts a quick post-virus recovery – with one big caveat<img class=”ResponsiveImage2-module__real-image ResponsiveImage2-module__real-image–fit-crop ResponsiveImage2-module__real-image–loaded” src=”data:;base64,” alt=”Oxford Economics predicts a quick post-virus recovery – with one big caveat” />
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Britain is midway through a deep recession: of that there is no doubt. But what next? Oxford Economics has today been one of the first to offer an answer, predicting a V-shaped economic recovery (sharp economic downturn and sharp economic revival) and near-complete economic repair. It is, of course, a guess: all forecasts are. But it’s one worth looking into in a bit more detail. All published economic forecasts pre-Covid-19 (including those accompanying the Chancellor’s Budget last week) are defunct, so this is an early test – one that factors in the Government’s policy of ‘social distancing’ and the profound impact this has on business as usual.

Oxford Economics has replaced its estimate of modest GDP growth of one per cent to a prediction of a fall of 1.4 per cent. Short-term growth has been slashed, now estimated to fall by three per cent in H1. And economic volatility will be with us for a while longer, as the combination of public health advice, working parents now looking after school-age kids full-time, and further hits to service sectors all take their toll on the economy.

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But unlike the 2007-08 crash, the economy here is crouching, on government instructions. Unlike during a normal downturn, we do not want people out and about, spending money and increasing economic activity; we want them out of restaurants, out of shops, keeping their distance from others. So the question is how high the economy is capable of standing later on, when things return to some level of normality. Oxford Economics says quite high: they forecast it will skyrocket with 3.7 per cent growth next year, returning to fairly familiar growth rates – albeit slightly higher – in 2022 and 2023.

Its base prediction: that between the monetary and fiscal stimulus on offer so far and historically low oil prices, Britain’s economy will have favourable conditions when it’s allowed to get up and running again.

But there is one big caveat: this modelling assumes that Covid-19, in historical terms anyway, is a short-lived phenomena which is tackled fairly quickly. This supposes that the Prime Minister’s estimates of ‘12 weeks’ to ‘turn the tide’ on the virus are largely correct, and we can crawl back towards normal economic activity in the second half of the year. In truth, no one knows how long this will last. This is an unprecedented situation, and a lot of the companies that will collapse during the crisis wont come back.

Oxford Economics notes that its previous studies regarding the impact of pandemics on the economy show that activity is ‘delayed’ rather than ‘destroyed’, which supports the V-curve narrative, that we can spring into action as soon as the immediate threat of the virus is eliminated. But just as this is not a normal recession, it is also not a normal pandemic. Most pandemic modelling is about flu (and it factors in a vaccine arriving in six months) but Covid-19 is not the flu, and a vaccine could be 18 months away. Nor do we know if Covid-19 will come back in a second or even third wave, as Spanish Flu did. In the worst-case scenario, it could mutate, making our public health response far more complex and expensive. There are many, many other variables.

But variables could work in our favour. A test to discover if a person has had Covid-19 (and should then be significantly more immune) looks to be delivered imminently: a test to see who has antibodies might release workers back into the economy more quickly.

So: still much uncertainty. But I suspect Oxford Economics will be the first of many forecasters to predict a V-shaped recovery.

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Written byKate Andrews

Kate Andrews is The Spectator’s Economics Correspondent