Sunak’s talk of emergency can only knock 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.

You may have seen a report a few days ago which highlighted people’s lack of understanding of basic economic concepts. The report, based on a survey by the Economics Statistics Centre of Excellence and the National Institute of Economic and Social Research, showed that fewer than half of people knew what gross domestic product (GDP) was when presented with a range of definitions.

Most, 67%, knew that the government was running a budget deficit – I don’t know what the other one-third has been doing during this year – but only 40% knew that that meant government

In a deep fiscal hole – and the government is still digging
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.

November can be a cruel month for chancellors. The last thing Rishi Sunak wanted was a second national lockdown and on Wednesday we will all find out what the additional measures he has been forced to put in place, including the extension of the furlough scheme until March, will cost.

On Wednesday the chancellor will announce the results of his one-year public spending review, covering 2021-22, the fiscal year starting next April. Shortly after that the Officer for Budget Responsibility (OBR) will unveil its latest fiscal assessment and economic forecast.

Three Old Hacks
Posted by David Smith at 02:30 PMCategory: Thoughts and responses

With my very good friends Mihir Bose and Nigel Dudley, I have been recording the Three Old Hacks podcast. The third episode has just gone live, and the previous two are also available on the Chiswick Calendar website: https://chiswickcalendar.co.uk/episode-3-elections-we-have-known-and-loved/

Record growth disappoints -but the job market offers hope
Posted by David Smith at 09:00 AMCategory:

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

We will look back on this time with wonderment. Economists who are young now will be telling their grandchildren about the time that there was a 15.5% rise in gross domestic product in a single quarter, admittedly preceded by a 19.8% drop in the previous three months. We will never see figures like that again.

Explaining too that even a 15.5% quarterly rise in GDP – three times the previous record (recorded during the Barber boom of the early 1970s) – was disappointing, not least because growth faded over the course of the quarter, will add to the oddity of those recollections. From now on

After another handout from Sunak, how do we pay for it?
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.

Like a lot of other people, I am finding that there is something missing in my life at the moment. It is not just that, thanks to the second lockdown, I can’t browse in a non-essential shop, sit in a pub or restaurant, have a haircut or beauty treatment, or play tennis or gold. I haven’t played golf for a while but in my case it was always socially distanced, most of the time trudging through undergrowth in search of lost balls.

No, apart from all those, I am missing the budget. For people like me the run-up to the budget always provides plenty of material,

Sunak’s bridge to normality proves to be a rickety 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.

Who would be a chancellor? As the second wave of the coronavirus intensifies, and national lockdowns are unveiled in France and Germany, albeit less strict ones than before, the direction of travel in the UK looks clear. Last night, as people will be aware, the prime minister announced a government U-turn and another national lockdown.

For the Treasury, this can only mean that the bill for responding to the crisis, which was already breaking records, goes up further, as does the challenge of restoring the public finances to health in the medium to long term.

Consumers will stay wary as long as the virus stalks 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.

We enter a new period of uncertainty, in response to which the chancellor, Rishi Sunak, has announced another set of job support measures, which is becoming a regular occurrence. The Bank of England is heading for a Bonfire Night announcement of another £100 billion of quantitative easing (QE), which will mean almost as much of this kind of help for the economy this year as in the previous 10 years combined.A month ago here, I wrote about the importance of confidence in driving the economic recovery. This was after Boris Johnson had announced new restrictions,

How the ‘China virus’ hurt China less than most others
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 we approach the end of this Covid year, with new restrictions popping up all over the place, cast your mind back nine months to January, when we had barely heard of the coronavirus, and it had yet to be christened Covid-19, let alone SARS-Cov-2, its current scientific identifier.

Nobody at that time expected a world recession. The UK economy was set merely for weak growth. The International Monetary Fund (IMF), which has just released a new world economic outlook, predicted in January that the world economy would enjoy a slightly better year in 2020 than in

There’s no quick fix for Britain’s deep productivity problem
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.

One of the topics I get asked a lot is about productivity. People don’t necessarily put it this way, but is this crisis unleashing the “creative destruction” that will propel us out of more than a decade of productivity stagnation? Is the working-from-home revolution and other changes that businesses have adopted, which in other circumstances could have taken years, good or bad for productivity?

What about the nature of the shakeout in jobs that we are seeing? Is the very bad news for the UK’s hard-hit hospitality sector, and the people who work in it, good

This nation of unexpected savers has money to burn
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.

Extraordinary things have been happening during this coronavirus crisis, and it is throwing up some extraordinary numbers. I could give you second quarter gross domestic product, now revised down slightly to show a fall of 19.8% (from 20.4%), still more than seven times its previous biggest recorded quarterly fall, 2.7% during the three-day week in early 1974.

I could also give you the plunge in the number of people on payrolls, 695,000 between March and August, or anything related to the public finances, where the official projection, a £372bn budget deficit this

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,