Is Britain set for a boom or an economic reckoning?I can rarely remember a time when views on what’s up next for the economy have been so polarised.Th
Is Britain set for a boom or an economic reckoning?
I can rarely remember a time when views on what’s up next for the economy have been so polarised.
The glass half empty view is that furlough, business grants and loans, ultra-loose monetary policy, a stamp duty holiday, and emergency cash splashed left right and centre are only delaying the inevitable.
Once the oil being sprayed on the engine runs out, it will seize up and a hefty recession will hit.
The glass half full view is that once we are released from captivity, with our lockdown savings at the ready, Britain is going to party and spend like there is no tomorrow – fuelling a consumer boom that could create a virtuous circle for a Roaring Twenties economy.
Britain’s economy took the biggest GDP hit since the Great Frost of 1709 last year due to the coronavirus lockdown
In all honesty, if the past year has taught us anything it is that trying to make any form of prediction on even the relatively near future is even more of a mug’s game than usual.
Nonetheless, the relative robustness that the economy has shown, the surprising strength of consumer spending, and the evidence that a chunk of Britain is sitting on a hefty pile of savings that many are eager to spend, makes me think the good times will flow once lockdown is lifted – at least in the short term.
I’m naturally optimistic, but even allowing for that bias, I think that Britain’s indications of an eagerness to get out and do stuff and spend on big ticket items when allowed, and the fact the economy managed to avoid shrinking in the final three months of 2020 bode well.
GDP figures from the ONS last week revealed that rather than contracting as expected in the final quarter of 2020, the economy actually grew 1 per cent.
In normal times that would be considered pretty good. At a time when a month of the period was spent in lockdown and then Christmas was curtailed for a large chunk of the country, it’s impressive.
Those figures could still be revised. Meanwhile, the GDP statistics for the first three months of this year, with a much tighter lockdown without any festive spending, are likely to be a very different picture.
But maybe the often surprisingly flexible British economy has adapted to massive disruption better than we think in a very short space of time.
When lockdown is finally put to bed, the economy is likely to spring back but will the momentum be sustained and deliver longer term benefits?
An interesting point on this was made by fund manager Nick Train in my recent Investing Show interview with him.
Reflecting on the idea that the coronavirus lockdown has forced five years of digital change and innovation in one year, he suggested this could lead to dramatic productivity gains in the years to come.
That effect across the globe will lead to major wealth creation all around the world and could drive both a consumer boom and increase in the standard of living.
He added: ‘As long as you’re not taking an apocalyptic view of the world then I think there’s plenty to be optimistic about.’
This is an alluring suggestion and as I wrote above I think there is merit in the theory that a coronavirus lockdown bounce back could have enough velocity to lift stricken economies out of their funk and drive businesses to stop hunkering down and start hiring and spending again.
There are a few flies in the ointment though. Firstly, the lockdown saver phenomenon isn’t quite as widespread as is often suggested.
Sure, if you are staying at home and not spending on an expensive commute, setting aside money you’d usually splash out on holidays, or you previously used to spend a lot on going out, then you are probably able to salt more cash away.
But if you didn’t have those elements to your lifestyle, or your business has been stricken, you’ve lost your job, or seen your means of earning an income ripped away, then you won’t be feeling so flush.
Figures from Nationwide show that while people it polled had saved £1,085 on average since the first lockdown, there are many who still ‘struggle to save much, if anything, particularly those on lower incomes’.
In fact, among those on £15,000 or less, while 26 per cent said they had saved more, 27 per cent said they had saved less, and 17 per cent said they never save any money.
Among those on £15,000 to £25,000, 38 per cent had saved more, 28 per cent less and 9 per cent never save anything.
In contrast, among those on £55,000 or more, 59 per cent said they had saved more, 13 per cent said they had saved less and only 3 per cent never save anything.
Once again, these are figures that highlight the gap between the comfortable and the struggling-to-get-by in British society – in the same way that a property mini-boom fuelled by house hunters looking for bigger homes in the country during the greatest economic crash in 300 years does.
To get the post-lockdown boom to deliver anything beyond a very short-term sugar rush, we’ll need those savers further up the scale to get spending and sustain that. Maybe then, we will all get richer.