A question of confidence as we face a long six months
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

Weeks like the one just gone do not come along too often. For economy watchers, the cancellation of the planned November budget and the scaling back of the comprehensive spending review was big news, as was their replacement by another emergency economic package.

Rishi Sunak’s winter economy plan, which we cover in greater detail elsewhere, was modest, probably costing no more than a few billion pounds compared with the £190bn plus the government has already spent.

The chancellor stuck to his promise of ending the furlough scheme, replacing it with a UK equivalent

For Britain, Covid has been the worst of all worlds
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

The Covid-19 crisis has seen the return of the public information broadcast, often accompanied these days by public information tweets. For those of us of a certain age, this brings back many memories, the broadcasts not the tweets. Public information films used to tell us to put seatbelts on in cars – “clunk, click, every trip” – though they were presented by Jimmy Savile. We were also told that “coughs and sneezes spread diseases”, a campaign that might be worth reviving now.

I say this because this is going to be a public information column, on the coronavirus

We priced ourselves into jobs last time. Can it happen again?
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

We are just coming up to the end of the first two weeks of September and you would have to say that the autumn has not started too well. On Covid-19, it has been a case of one step forward – the overwhelming majority of schools returning – and at least one back; new national restrictions on people gathering, the so-called rule of six, that could be in place for many months.

These lurches do nothing for confidence. One minute the talk is of a return to work, the next is the threat of a national lockdown – something I thought had been ruled out by the

Sunak’s toxic tax problem as spending hits wartime levels
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

It is easy sometimes to forget what an extraordinary period we are living through. There are many ways to capture it with statistics but let me today provide you with just one. What will public spending be this year as a proportion of the economy? What will the state’s share be?

The answer, according to the government’s fiscal watchdog and forecaster, the Office for Budget Responsibility (OBR), is no less than 54% of gross domestic product. That is on the basis of its central scenario. If things turn out worse than it expects, the spending share could be as high

A post-lockdown housing boom. But will it turn to bust?
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

There are many things you might have expected to happen as lockdown was eased but I suspect that a housing boom was not one of them. At a time when it has been harder than expected to get people out of their homes, it was not obvious that the first thing on the minds of many would be moving to a new one.

That there has been a burst of housing activity and a jump in prices is not in doubt, and I shall come onto some of the evidence in a moment. It is possible, of course, that some of this has been stimulated by the experience of lockdown itself, and the prospect of

Worried about debt? Not in a world running on MMT
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

Today, something slightly different. This is in the nature of an economic version of a request show. I have had many requests to write about what is known as modern monetary theory (MMT) and this is my response. MMT has been around for some time, decades or even centuries according to its advocates, but it is relevant now.

My reluctance to write about it has been partly because its true believers, like some true believers in Brexit, can get very exercised when faced with criticism, even it is constructive. Actually, there is an overlap between supporters of MMT and

V, W or Aargh? It depends on the virus – and on jobs
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

When the economy has been hit by as profound a shock as Covid-19, and the unprecedented lockdown measures adopted to limit its spread, we should take comfort where we can. The Bank of England, which gave us its latest forecast on Thursday in its quarterly monetary policy report, offered a modicum of such comfort.

On the basis of its new forecast, we no longer have to look at the early 1700s, the time of Queen Anne, the War of the Spanish Succession of 1706 and the Great Frost of 1709. If the Bank is right, and the economy shrinks by “only” 9.5% this year, it will

We have to say farewell to the furlough scheme
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

The idea that we have experienced two “once in a lifetime” shocks in little more than a decade is now becoming pretty well established. Both the global financial crisis and the Covid-19 pandemic share one thing in common. Nobody, despite many claims to the contrary, really predicted either.

Some warned about the unsustainability of the global economy, the build-up of debt and the dangerous reliance on risky financial derivatives in the run-up to the financial crisis but these general warnings did not add up to a prediction of the crisis in the way it panned out.

Austerity’s off limits, but Sunak will try to squeeze spending
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

There have been many tricky public spending reviews over the years. Some even informally revived the historic star chamber to resolve bitter disputes between Whitehall departments and the Treasury. This year’s review, announced by Rishi Sunak a few days ago, is perhaps the trickiest yet, however.

The chancellor’s task in providing support to an economy hit hard by Covid-19 is not yet over. During the crisis he has been handing out money hand over fist. Never before has the Treasury played Lady Bountiful to the extent it has in recent months. Her Majesty’s

How COVID and Brexit put the kibosh on business investment
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

So far during this crisis there has been a lot of emphasis, understandably, on what it means for the economy in general, for unemployment, and for the public finances. We know that the economy suffered a record fall in March and April, and only a modest bounce in May, so is 24.5% below pre-crisis levels.

We also know that the unemployment dog has yet to bark in the official figures, where the rate is still, miraculously, below 4%, but that it surely will in coming months. As for the public finances, the question is whether government borrowing this year will be

Rishi to the rescue, but we’ll have to live with the debt
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

Hindsight is a wonderful thing but I can honestly say, listeninging to Rishi Sunak’s plan-for-jobs statement last Wednesday, the words “deadweight cost” kept coming into my mind. This was except when he announced his “eat out to help out” 50% reduction in restaurant food bills on some days in August, when the word was “gimmicky”.

I am not going to criticise the saintly Sunak too much because he is more popular than any economic journalist is ever going to be, and because he is doing his best in very difficult circumstances. He is also refreshingly aware of the

Sunak has to spend now, and he will have to spend later
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

On Wednesday, straight after prime minister’s questions, when Rishi Sunak stands up to address the House of Commons, it will feel like a budget. And expectations are probably higher than ahead of most budgets, particularly after Boris Johnson’s ‘no big deal’ speech last week, dressed up as his version of Franklin D Roosevelt’s New Deal of the 1930s.

The chancellor has been the undoubted star of the Covid-19 crisis and he will want to ensure that his crown does not slip this week. In some important respects this will not be a budget, however, but merely an economic

After the bailout, Bailey plots the Bank’s exit strategy
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

When Andrew Bailey became governor of the Bank of England in March, the usual description of this Threadneedle Street veteran was that he was the ultimate safe pair of hands and a model of discretion. Mark Carney, his predecessor, had developed a reputation for generating headlines, and was happy to wander beyond his brief. Bailey, it seemed, would keep himself within the Bank’s solid walls.

This theory suffered a rather big blow a few days ago when the new governor generated headlines suggesting that Britain almost went bust in March but was saved by the Bank’s

The floor’s the limit – we must avoid negative interest rates
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

As widely expected, the Bank of England announced additional quantitative easing (QE) on Thursday, pumping in a further £100bn. The Bank’s monetary policy committee (MPC) did not cut its main interest rate below zero, leaving it at 0.1%, despite some suggestions that it might do so, and hints from some members that negative rates are part of its armoury.

I shall come on to negative rates in a moment. It may seem a little odd, when the Bank announces a further £100bn of QE, to describe the decision as hawkish, but it was. Instead of a unanimous decision in

We need imaginative ideas on the long road back for jobs
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

Some things are worth getting up early for, and Friday’s 7am clutch of official figures on the economy fell into that category. I can safely say that I never expected to see anything like a drop of more than a fifth in the UK’s gross domestic product in a month.

Even more surprising, perhaps, was that the figures were not surprising. Roughly speaking, the lockdown has taken out a quarter of Britain’s GDP, April’s 20.4% drop being preceded by a 5.8% fall in March. Almost two decades of growth were wiped out in two months. The OECD says the UK is heading for an

A groggy recovery is under way but the real test comes later
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

On Friday, the Office for National Statistics (ONS) will publish its monthly estimate of gross domestic product for April. That may not sound like the most momentous event but stop all the clocks, cut off the telephone, it will be, reflecting a month in which the economy was almost dead to the world.

The crash in GDP in April will put the previous monthly record, March’s 5.8% plunge, in the shade. It will generate many headlines. But it is, if not old news, a reflection of how the economy was at time of maximum lockdown, not as it is now.

What we have seen

Levelling up has become even more of an uphill task
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

A long time ago, though not in a galaxy far, far away, we were in a different world. I am talking about early March in this country, less than three months ago. When, on March 11, Rishi Sunak presented his first budget, the economic costs of this coronavirus outbreak were starting to become clear.

The chancellor announced a small package of measures, intended to help hardest hit firm and, by the time he stood up on budget day, the Bank of England had cut interest rates from 0.75% to 0.25%, unveiled a new term funding scheme for small firms and relaxed the

Signs of life start to flicker in our lockdown economy
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

When, a few days ago, Rishi Sunak warned of “a severe recession, the likes of which we have not seen”, the surprise was that nobody was surprised. He was also able to say it without facing criticism. Among the many changes brought about by this crisis, the old rule that chancellors should always be upbeat, even when standing on the burning deck, appears to have been shelved.

I could not help contrasting it with the fate of Alistair Darling, a month before the collapse of Lehman Brothers in 2008. The then chancellor, now Lord Darling, told an interviewer that the

There’s no need for tax rises now, and maybe not later
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

In a moment I shall have something even more interesting to say on the economics of this pandemic, but first let me deal with the great lumbering elephant in the room. This is the extent of the government’s support for the economy during the crisis – including Rishi Sunak’s extension of the furloughing scheme last week – and how we will pay for it.

It is a question I get asked a lot. How much will taxes have to go up to pay for this and, whether Boris Johnson uses the A-word or not, will it mean a new round of austerity, or the cancellation of previously announced

Wartime lessons on deficits, debt and the role of the state
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

On Friday we marked 75 years since VE Day, and the end of the Second World War in Europe. Will we still be talking about this coronavirus crisis in 75 years’ time? Whether it becomes one of the great pandemics, in terms of the global death toll, remains to be seen, but if its economic effect is anything like the 14% fall in gross domestic product (GDP) this year sketched out by the Bank of England on Thursday, we will remember it for a very long time.

It could be, of course, that we are moving into an era in which very dramatic swings in GDP become the norm,

We’ll have a different economy – but will it be a better one?
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

The extent of the economic shock from the coronavirus crisis and government-imposed lockdowns is becoming clearer by the day. China led the way in reporting a slump in gross domestic product in the first quarter and now other countries are following suit. These are just the appetisers, if that is the right word, ahead of much bigger falls in economic activity in the current April-June quarter.

America’s 4.8% annualised drop in gross domestic production the first quarter (1.2% in the way we would measure it) was milder than France’s 5.8% fall (in the way we

Lockdowns are different, and getting out of them is the hard part
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

A pandemic which originated in the Far East is sweeping across the country, leading to many thousands of deaths and putting the National Health Service under intense pressure. Aspects of normal life are significantly interrupted. The fear among experts is of a second wave even deadlier than the first.

I am not, for once, talking about the current coronavirus pandemic, which I shall come on to shortly, but about an earlier one, employing the technique used by the very good Radio 4 programme The Long View. This is the pandemic that affected Britain half a

How to avoid the scars from a deep and nasty recession
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

Anybody who was shocked by the scenario drawn up by the Independent Office for Budget Responsibility (OBR) a few days ago, the one that suggested that Britain’s economy could shrink by a massive 35% in the second quarter of the year, should perhaps not have been.

Huge though the OBR’s numbers were, which included a rise to 3.4m in the level of unemployment and a budget deficit of £273bn, or 14% of gross domestic product, this year, they were the natural consequence of something I described here exactly a fortnight ago.

My piece then, “Despatches from an economy

Even as we dive into recession, some worry about the return of inflation
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

At this time, indeed at all times, I am conscious of not wanting to add to the mood of concern, to put new bricks in the wall of worry. But it would be remiss of me not to address something that some people are worried about, which is that this modern great plague that we are seeing will be followed by a great inflation.

I say worried. Some would say that for governments racking up a lot of additional debt in their efforts to fight the coronavirus and trying to limit its economic impact, higher inflation would be no bad thing. It was part of what

Despatches from an economy operatng at two-thirds of normal
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

It is a big and difficult question. How much is the economy being shut down by the lockdown? Is very little happening, as it can easily seem, or is quite a lot of activity happening alongside social distancing and a huge increase in the number of people working from home? How much below normal are we?

And, as importantly, which I shall come on to, is it possible to increase the amount of economic activity that is taking place? Let me be clear, I am not about to join the ranks of the irresponsible, and advocate that we ignore the virus and carry on as normal

Whatever it takes – but with an eye on the public finances
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

For those of us who were not around at the time, one of the most impressive things that happened during the Second World War was that, even when the outcome was highly uncertain, planning for a post-war future took place. The Beveridge report, which formed the basis of the post-war welfare state, was published by the wartime coalition government in December 1942. The Bretton Woods conference in America, which put into place the post-war architecture of the international economic and monetary system, notably the International Monetary Fund and World Bank, was in

The deeper the dive, the longer the way back
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

If you can keep your head when all about are losing theirs, to paraphrase Rudyard Kipling, then you are the right person for a crisis. Britain has gone into this one with a new chancellor and a new Bank of England governor and it is only fair to say that both deserve congratulation for both keeping their heads and their speed of response.

Rishi Sunak is having a good crisis and has shown a sure touch in extraordinary circumstances. When he says “whatever it takes” he means it. He and the Bank’s Andrew Bailey, some of whose emergency measures were done with outgoing

The chancellor places his bets on a £1 trillion gamble
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

It is always a challenge writing about a budget a few days after the event, particularly when the ensuing period has included a further big slump in the stock market – making this bear market very grizzly – the government’s response to the coronavirus outbreak moving into a new phase and Donald Trump’s ban on travel from most European countries to America.

There is the bigger question of whether the impact of Covid-19, on public health, society and the economy, will be so severe as to make the budget irrelevant. I do not want to be alarmist about this, and have

Get businesses to invest or you can forget about levelling up
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

It is beginning to look a lot like the curse of the budget. This time last year the last chancellor but one, Philip Hammond, unveiled his spring statement for the economy, having had a budget the previous October.

In it, he looked forward both to an autumn budget and a three-year public spending review, which would conclude at the same time. Neither happened. Sajid Javid, his successor, having only managed a one-year spending review in September, was all ready to roll with a budget in November but the election was called instead.

Now, unless the Treasury

A nasty shock – but only if we panic about the pandemic
Posted by David Smith at 09:00 AMCategory: David Smith’s other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

Once it would have been easy. People like me would have looked at the deadly effect of the coronavirus Covid-19 outbreak on the stock market, concluded that it must be telling us something important and worrying, and wheeled out our recession predictions.

Times have changed. The FTSE 100 and other markets have taken a very nasty tumble and, as I write this, London’s main index has not only wiped out all its post-election gains but is quite a bit lower than it was a year ago.

But the mechanism through which falling stock markets were traditionally supposed to feed