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

Sunak gets ready to do a reverse Osborne
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.

Nothing is predictable these days, which may be the government’s guiding principle, but for this week I am making two assumptions. The first is that, unlike his predecessor, Rishi Sunak will be around for long enough as chancellor to deliver a budget. The second is that the budget will go ahead, as planned, on March 11, as he suggested a few days ago. I hope I am right.

What can we say about a budget from a chancellor whose rise has been rapid, if not quite without trace, and whose views are not yet well known? We are told that he is a fiscal conservative and, interestingly, was

When a chancellor quits, we should all be unsettled
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 the many years I have been doing this job, two chancellors, John Major and Gordon Brown, have left their post to move onto greater things; becoming prime minister Two have lost therole of chancellor as a result of election defeats for the governing party; Kenneth Clarke and Alistair Darling. Three have been sacked, sometimes after being offered demotions; Norman Lamont, George Osborne and Philip Hammond.

Only two, however, have resigned and, curiously enough, both did so over the question of advisers. Nigel Lawson resigned in October 1989 because Margaret Thatcher

The government is getting itself into a spending tangle
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 lot has changed since the general election two months ago. Businesses and consumers are more optimistic and there should be a decent growth rebound in the first quarter, after a pretty grim end to 2019. Surveys such as the purchasing managers’ index suggest the optimism rebound was not just relief at the fact that the country avoided a Corbyn government. It strengthened through the month of January, so the final reading was up on the earlier “flash” estimate.Not everything in the garden is rosy, of course. China is now big enough to have an impact on the global

No rate cut, but no chance of a hike either
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 the end, like a lot of sporting events in which there is a lot of excitement in the build-up, it was not that much of a contest. On Thursday lunchtime, as you will know, the Bank of England’s monetary policy committee (MPC) left interest rates unchanged at 0.75% by the same 7-2 majority as in November and December.

What was billed in the City as the most unpredictable decision on rates for years passed without incident. Those who were confident of a cut in rates will live to fight another day, I hope, and are busy blaming the Bank’s mixed signals. Those who thought the

Forget the Romans, what has the EU ever done for us?
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 moment has nearly arrived. Unless something really unusual happens in the next few days, this will be the last column I write here while Britain is a member of the European Union. By next weekend we will be out. And, while there will then be a transition period, at least until the end of the year, from 11pm next Friday, we will be a “third country”, no longer an EU member state.

It is possible, in 10, 15 or 20 years’ time that a future politician will decide that Britain is best served by reapplying for EU membership. But both the UK and the EU will have changed

A rate cut now would be a vote of no confidence
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.

Things have taken an unexpected turn, which is always interesting. Financial markets have, in the space of a couple of weeks, gone from thinking that there is no chance of an interest rate cut this month to expecting one. January 30 will be the last interest rate decision presided over by Mark Carney as Bank of England governor.

Though he does not hand over to Andrew Bailey until March, who will be in place for the next monetary policy committee (MPC) meeting later that month, markets had expected his final meeting to be, in interest rate terms, a non-event.

That would

Yes, invest in the regions, but don’t expect miracles
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 Treasury traditions have been lost in the mists of time, which is a pity. January used to be the time when the Treasury floated ideas for the March budget. Hares were set running, some of which found their way into newspapers like this one, though sometimes they fell by the wayside before the day itself.

Chancellors would take senior officials to Dorneywood, the Buckinghamshire country home that goes with the job, or occasionally borrow Chevening, the foreign secretary’s official residence in Kent. There, interspersed with parlour games and snooker matches

Hoping for the best on Brexit and world trade
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.

This is a time for looking forward, not back, but I thought it would be instructive to look back briefly at what I have said in recent years in these new year pieces. This time last year I wrote that the economic outlook depended to a disturbingly large extent on achieving a smooth Brexit but I was also worried about the balance of payments.

I was right to be worried. Though there was an improvement in the third quarter, the current account deficit in the first quarter was an elephantine £37.4bn, 6.8% of gross domestic product, slipping to 4.4% in the second quarter and

Forecasters were too upbeat on growth but too gloomy 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.

The table to accompany this piece is also in the Sunday Times.

The moment has nearly arrived, not just the end of the year but the end of the 2010s decade. Nobody has yet come up with a good name for this decade, which was never roaring though probably was a long period of convalescence from the financial crisis.

Before coming on to 2019, and how economic forecasters did or did not do, a few statistics from the decade now ending. Growth, assuming a 1.3% outturn for 2019, will on currently available figures have averaged 1.8% during the decade, with the

As well as infrastructure, regions need a shot of entrepreneurial spirit
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.

With the passing of the years, I find it increasingly useful to scribble reminders for myself on Post-it notes, as an aide memoire of things that have to be done. I am pleased to say that Sajid Javid, the chancellor, adopts the same approach, or at least he did on his Twitter feed, even though he has an army of officials to keep him on track.

The chancellor’s list of things to do had six items: GBD; NHS, police and schools; an infrastructure revolution; cutting taxes for working people; keeping the economy strong and walking Bailey.

I had to

A big win – now Tories need to reboot the 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.

The best post-election stories, as far as economic policy is concerned, are those when there is a change of government. There is the hardy perennial of the Tory chancellor Reginald Maudling leaving a note in 1964 to his Labour successor and friend Jim Callaghan, saying: “Good luck, old cock. Sorry to leave it in such a mess.”

More recently Liam Byrne, Treasury chief secretary during Gordon Brown’s Labour premiership, achieved legendary status by leaving a note for his successor in 2010, saying “I’m afraid there is no money”. Byrne, who has been quietly working away as

The election’s nearly over, but uncertainty will remain
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 first rule of forecasting is that the closer is an event, the more cautious you should be about predicting the outcome. That will not stop a wave of such predictions in the coming days, and it has not stopped the financial markets from, for example, pushing the pound higher on the assumption of a Tory majority being delivered on Thursday.

I do not need to tell you that the markets, taking their lead from opinion polls as well as bookmakers’ odds, sometimes get it wrong. They did not anticipate the vote for Brexit or Donald Trump’s election victory in 2016, or

More Stoke-on-Trent than Singapore-on-Thames
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.

General elections are occasions when political parties can set out their visions for the country, allowing voters to choose between their wares. Labour has done so emphatically, as discussed here last week. We can say, beyond any doubt, that the country would look very different after five years of a Jeremy Corbyn government.

But what about the Tories? They have come out with a manifesto so devoid of content and vision that they might as well have not bothered. If it was intended to be instantly forgettable, it was a great success. Otherwise, instead of the roar of a lion,

Labour’s four-day week is just a terrible waste of time
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.

Sometimes you are just spoiled for choice and, suspend your disbelief for a second, on this occasion it is the politicians who are spoiling us. The Tories will be revealing all in their manifesto today, an odd day for a launch, but they will have to go some to match the cornucopia unveiled by the Labour party on Thursday.

There is enough in Labour’s manifesto for not one, but a dozen columns. Fortunately there is a cut-off date, December 12, to stop me doing that.

At its heart is a simple message. The Tories, with their cruel austerity, have been the party of

Wages up, jobless down, but confidence is lacking
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.

Students of British election history will know that official figures can often scupper the best-laid plans of political parties. Bad trade figures, by legend inflated by a couple if jumbo jets, famously helped cost Harold Wilson, the Labour prime minister, a general election in 1970 he was expected to win. The release in May 2016 of official figures showing a record figure for net migration the previous year changed the nature of the referendum debate and helped swing a leave vote the following month.

So it is with some trepidation that ministers, who no longer see

Spend, spend, spend, but beware the bond market
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.

This is turning into an autumn of cancellations, not of trains because of leaves on the line, though no doubt there have been some of those, but of economic events. Last Wednesday was supposed to be Sajid Javid’s first budget but it was cancelled because of the election, the day after the chancellor insisted it would go ahead.

On Thursday, the Office for Budget Responsibility (OBR) intended to produce a “forecast restatement”, taking into account changes since its last assessment in March, notably the different treatment by official statisticians of student loans; which

Beyond Punch & Judy, some good ideas for the 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.

It is hard to feel much enthusiasm for a general election nobody really deserves to win, and which seems certain to be dominated by Brexit. Financial markets, taking their cue from betting markets, are seeking reassurance in the prospect of a Tory majority. I would warn them that the betting markets have not covered themselves in glory in recent elections and referendums, and that Theresa May was a hotter favourite in 2017 than Boris Johnson is now, and achieved a bigger share of the vote then (43%) than the Tories are polling now.

The last Tory leader to win a