Rishi Sunak isn’t gloating about the UK’s economic recovery. He is wise not to
The Treasury understands that shutdowns and reopenings can seriously distort growth and joblessness figures
There’s a scene in Tom Stoppard’s Arcadia when the clever, media-hungry English don, Bernard, thinks he has got one over on his rival by discovering something new about Lord Byron. He plans to publish his findings in a suitably august academic journal, where he promises the write-up will be “absolutely gloat-free”.
Rishi Sunak’s response to the barrage of good news that has been emerging about the UK economy in the past few weeks has also been gloat-free. The chancellor of the exchequer has expressed modest pleasure at official figures showing a pick-up in activity and a fall in the jobless rate, but he certainly hasn’t been banging the drum for boom-boom Britain.
That’s a wise strategy. Previous occupants of 11 Downing Street have boasted about the economy reaching a new plateau of achievement (copyright Nigel Lawson) or ending Tory boom and bust (copyright Gordon Brown), only to find that nemesis comes hard on the heels of hubris.
Sunak is as cautious privately as he is publicly. The Treasury’s response to figures showing the economy bouncing back strongly from the lockdown in the first three months of 2021 is to say: well, it would, wouldn’t it? If you turn off large chunks of the economy, you are bound to get a response when you turn them back on again. The Great Depression in the US reached its trough in 1932, so growth looked good in 1933, but that didn’t mean all the country’s economic problems were over.
Another reason Sunak doesn’t especially feel like gloating is that he and his officials are concerned the surge in activity will blow itself out during the summer, with things looking a lot less robust in the autumn.
Again, the caution makes sense. The chancellor would resist any pressure to put the economy back into lockdown, arguing that the virus is something the country can now live with thanks to the success of the vaccination programme. But even if there is no third wave as the nights draw in, that doesn’t mean that consumers are going to carry on spending freely once they have satiated their initial appetite for splashing the cash.
The best news for Sunak since the turn of the year is that unemployment has remained so low. To be sure, hundreds of thousands of people have lost their jobs, but the damage to the labour market has been much less severe than feared. Most experts, including those at the Treasury, would have expected the jobless rate to be double its current level of 4.8%.
The big imponderable is what happens as government support is withdrawn. Many businesses have little or no working capital; insolvencies have been kept artificially low for the past 15 months; the furlough comes to an end in September. These things concern the chancellor, as well they might.
There are two possible paths for the economy. One is that the speed of recovery is fast enough to limit long-term scarring to a minimum but not so fast as to produce the sort of upward pressure on inflation that would itself put pressure on the Bank of England to start withdrawing the stimulus it has been providing through low interest rates and quantitative easing.
A second is that the recovery is strong but brief, either because consumers become more cautious again after their spending spree, or because inflation starts to erode living standards. Sunak will be hoping for the first but is aware that the second remains a real possibility despite the steps taken to avoid it. In Arcadia, predictably, it all goes horribly wrong for Bernard.
You need nerves of steel to ride the Bitcoin rollercoaster
If you stand six feet away from your computer screen so you see only the blurry outline of a price chart, you could almost convince yourself it was an averagely volatile week for bitcoin.
The price was roughly $45,000 at breakfast time on Monday and was $40,500 at Friday lunchtime, but who gets excited about a 10% fall in a cryptocurrency that is still up fourfold in a year? Even shares in Vodafone, one of the biggest constituents of the FTSE 100 index, were down 10%-ish last week.
The week-on-week view, though, doesn’t capture the drama of Wednesday, when bitcoin plunged 30%, almost touching $32,000, and then recovered most of its losses.
There is no point trying to predict where bitcoin’s price is heading next since, unlike Vodafone, there’s nothing tangible to analyse. There are no cashflows to value, for instance. But one can, perhaps, draw two conclusions from the midweek event.
First, it made it even less likely that bitcoin, or any other digital coins, will become a mainstream payment system any time soon. No company in its right mind would want to write or accept contracts in a currency that can rise or fall by 30% in a matter of hours.
Second, risk appetites of bitcoin’s investors-cum-speculators may be affected. Those who stayed on Wednesday’s rollercoaster and held their tokens may be congratulating themselves on their iron nerves and strong stomachs. Alternatively, they may be fearful that the next dip won’t be followed by an immediate recovery.
Investment bubbles rarely pop in one go. The process is usually a series of deflations, and can even include periods of reinflation. So the next test of fear and greed in the bitcoin market will be fascinating. Late arrivals to the party now know the price can fall 30% very quickly. That does tend to change the psychology.
Electric car goal is no good without a roadmap
The 2030 ban on sales of conventional internal combustion engines in the UK is one of the most consequential policies this government has introduced, even if a rearguard action by carmakers successfully delayed a ban on hybrids (which combine a battery and a fossil-fuel engine) until 2035.
Yet since that announcement in November there has been a growing sense of unease that the government has written a press release without a plan. If Downing Street still needs another wake-up call it would do well to heed Wednesday’s warning by MPs on the public accounts committee that the UK faces a “huge challenge” to get to 100% electric car sales so fast.
The main problem does not appear to be consumer enthusiasm: polling published on Friday by Ofgem, the energy watchdog, found that a quarter of UK households intend to buy an electric car in the next five years. The MPs’ report instead highlights the lack of any kind of government plan on how to manage this major transition.
The lack of a plan for charging infrastructure is particularly worrying. The Society of Motor Manufacturers and Traders, the car industry’s lobby group, said last week that “a massive and rapid rollout of infrastructure nationwide” is required.
The private sector is rushing – charging even – to fill the gap, especially in the potentially lucrative high-speed network. However, at the current rate, the serious disparity in charger availability across regions will continue. That could hold back poorer areas. A third of UK households with cars park on the street, but there is no overall plan for publicly accessible chargers – whether in wealthy parts of London or smaller towns across the country.
The 2030 deadline puts the UK at the vanguard of the green energy transition, exactly where it should remain as it carves out a new, post-Brexit role on the global stage. Yet without a proper plan the UK risks squandering the opportunities to become a world leader.
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