Chief Economist’s Weekly Briefing – ‘Exhausted’ but ‘hopeful’

This week’s title draws on the most popular words being used to describe 2020 and 2021 according to a recent survey. Well barring the expletives! The fight against the virus has left the world worn out but this has not prevented households and businesses from hoping for a better future, even when new challenges continue to arise. So it’s a hopeful note that we end our year on.

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Emergency, Emergency, Emergency

Rishi Sunak hasn’t yet completed a year as Chancellor but he is a crisis veteran. The word ‘emergency’ featured four times in Sunak’s speech in which he outlined the UK’s three emergencies. These are health, economic and fiscal. “Our health emergency is not yet over.  And our economic emergency has only just begun”.  

Recent developments on the vaccine front have provided a much needed shot in the arm for optimism for 2021. In turn, that has filtered through to the economic forecasts. Nevertheless, there is no economic vaccine for the deepest recession in 300 years, just painkillers.

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Cliff edges rounded but hard landing beckons

Fears of a ‘cliff edge’ end to the furlough scheme were always overdone.  Rishi “whatever it takes” Sunak was always going to do more. Treasury watchers have noted that the Chancellor, who has only been in post for seven months, has a proven track record of letting his actions speak louder than his words. He is an active interventionist Chancellor who has demonstrated an ability to adapt and provide more support as and when required. Another round of support measures / fiscal stimulus was due this autumn. With the pandemic rearing its head again, the associated deterioration in the economic outlook brought measures forward by a number of weeks. Today’s Winter Economy Plan is further evidence of a Chancellor who under-promises and overdelivers. Sunak unveiled a package of measures including a wage support scheme, an extension to the VAT cut for hospitality and tourism, and measures in relation to government loan schemes.

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Chief Economist’s Weekly Brief – Step by step

A week with cause for cautious optimism. The report card on various countries reopening show no upturn in cases in Western Europe. While a better than expected US jobs report and recovering PMIs in China provide some encouragement. But the damage wrought is extensive. It will be a long, arduous journey through recovery with the risk of setbacks along the way considerable. The rising number of cases in the southern US a prime example.

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Spike!

Incoming economic indicators have been hitting record highs and lows of the negative variety. April was the first month of a full lockdown so data linked to this month has been dire. All of the UK regional PMIs posted record lows in April with Northern Ireland the weakest of all. New car sales has been another area showing staggering rates of decline, with the UK and NI posting 97% and 99% year-on-year declines respectively. Last month saw the fewest new car sales since 1946. Comparisons with WWII are coming in thick and fast. Staggering rises, as opposed to falls, are the concern with global unemployment trends. For example, the US unemployment has already hit a post-WWII high of close to 15%. Today we finally got the first meaningful  indications of the COVID-19 impact filtering through into the UK and Northern Ireland official labour market data.

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Chief Economist’s Weekly Brief – More of the same

The easing of lockdown restrictions, and with it the economic recovery, looks set to be taken tentative step by tentative step. Witness South Korea having to reintroduce some distancing measures. Meanwhile data is putting more colour on the enormous scale of the economic damage. No surprise that the Bank of England is envisaging the worst downturn since 1706. Even worse than the “Great Frost” of 1709.

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