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With every lockdown we lose some more of our economy

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With every lockdown we lose some more of our economy Posted by David Smith at 09:00 AMCategory: David Smith's other articles My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt. Normally at this time of year not much happens and, during the period of limbo when most of the data refers to last year, it is sensible not to draw too many conclusions about what is going on. This year, however, not much is happening for a different reason. Lockdown 3 has followed hard on the heels of Lockdown 2, with only a few short weeks of tiers in between.Nobody wants this third lockdown but this is not to deny its necessity. Indeed, the main criticism of the government should be that it has been too slow to grasp the nettle, not trigger-happy. Governments in all

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With every lockdown we lose some more of our economy

Posted by David Smith at 09:00 AM
Category: David Smith's other articles

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

Normally at this time of year not much happens and, during the period of limbo when most of the data refers to last year, it is sensible not to draw too many conclusions about what is going on. This year, however, not much is happening for a different reason. Lockdown 3 has followed hard on the heels of Lockdown 2, with only a few short weeks of tiers in between.

Nobody wants this third lockdown but this is not to deny its necessity. Indeed, the main criticism of the government should be that it has been too slow to grasp the nettle, not trigger-happy. Governments in all parts of the UK have made errors. The Welsh government followed its 17-day October-November firebreak with a big relaxation of restrictions and, as a result, at one stage recently had the highest infection rate in the world. The Johnson government’s lurches before and after Christmas did nothing for confidence and may be only belatedly successful in bringing down infection numbers.

Lockdowns remain controversial. There were restrictions in earlier pandemics but on nothing like this scale. But some of the people arguing that Covid-19 is a hoax, or that lockdowns do not work in limiting its spread, are like those arguing that, despite his heavy defeat and appalling behaviour Donald Trump really won the US election. Indeed, there is often a crossover between these groups.

The misuse of statistics by the coronavirus and lockdown sceptics is as irritating to the statisticians as their other antics are to frontline NHS staff. Nick Stripe from the Office for National Statistics (ONS) tweeted some interesting facts about what happened last year, up to December 25.

The year started with “excess” deaths below the average of the previous five years but that quickly changed with Covid-19 in March. In total there were 73,000 excess deaths in England and Wales last year. From late March to Christmas Day, the excess was more than 78,300.

There were more than 600,000 deaths in England and Wales last year, for the first time since 1918, when the Spanish flu pandemic began. Adjusted for population, there were more excess deaths than in any year since 1940, when the country faced a different kind of threat. We know that without restrictions and social distancing, these figures would have been much higher.

The first lockdown had a crunching impact on the economy, not least because a lot of things closed, including factories and construction sites, which did not need to. The second, in November was milder. This one will be closer to November than March-April, the main uncertainty being how long it will last.

That has shifted some analysts, who normally focus on economic and financial data, to try to come up with vaccination and case number scenarios. David Mackie of J P Morgan is using a matrix of vaccination numbers – under which low would be 200,000 a day, high 300,000 – infections and lockdown compliance. He concludes that while at first blush it looks as if a nine-week lockdown, to March 10, looks likely, the situation could be better than that, allowing the toughest restrictions to be lifted in six weeks, on about February 12. The government is suggesting a longer haul but that is better than overpromising on the timing of exit, as is its wont.

What about the economics of this? There was a lot of excitement about double dip recessions in the aftermath of the global financial crisis but, though it was close, we never quite had one. That means the last one was nearly half a century ago, in the 1973-5 period; three consecutive quarters of falling gross domestic product in 1973, followed by another two in 1975.

The recent picture for UK GDP is dispiriting. The economy was doing badly in 2019, with successive quarterly growth rates of 0.1%, 0.5% and zero from the second quarter. It then shrunk by 3% in the first three months of this year (at the time the biggest fall in the post-war period) then that enormous 18.8% slump in the second quarter. As things stand, the 16% jump in GDP in the third quarter looks like the aberration, and raises the question about whether, after such a short reprieve, we should call it a double-dip recession at all.

We have to wait a little longer, until Friday, to know what happened to GDP in November, let alone the final quarter of 2020 as whole. But the consensus is that GDP will have fallen by up to 2% in that quarter (though some think there will be no fall at all), and by up to 4% in the current quarter. The longer the lockdown, the bigger the fall.

Some people have been getting very exercised about what this third lockdown will mean for the public finances. There are suggestions that this year’s budget deficit will come in at half a trillion pounds, £500bn, rather than the £394bn predicted by the Office for Budget Responsibility in November. I never expected to be arguing about whether the budget deficit would be £400bn or £500bn, but borrowing would really have to go some to get from the cumulative £240bn in the April-November period, the first eight months of the fiscal year, to anything close to £500bn for the year as a whole.

There are many imponderables, the speed of the vaccine rollout, the extent of this lockdown and the adjustment to Britain’s post-Brexit future, with some smaller exporters giving up the ghost already.

What we should remember in all this, however, is that each of these episodes takes out thousands of businesses, some bad but many good, and leaves the economy smaller and its capacity for recovery impaired. There was a time when plenty of people said that the economy could survive one lockdown but not two. Now we are into number three and for many businesses, particularly smaller firms, survival is now the key. Let us hope that, for most, it will be possible to look beyond mere survival quite soon.

With every lockdown we lose some more of our economy
David Smith
David Smith is economics editor of The Sunday Times. His website is http://economicsuk.com . His latest book is Something Will Turn Up.

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