Britain’s economy, as it emerges from lockdown, appears to be recovering far faster than anticipated. Forecasters have revised up their predictions for growth and lowered their projections for the unemployment rate. This follows a range of data that came in far stronger than anticipated, from jobless figures to retail sales.
Partly, the UK’s bounce back reflects the same factors that have lifted expectations for other rich countries: a vaccination programme, an end to lockdowns and high rates of household saving. Britain’s faster-than-most inoculations and the ending of its stricter lockdown means these tailwinds are felt even more strongly. Fiscal support, as in other countries, has played a role; the government allowed its deficit to reach the highest level since the second world war partly by funding a generous furlough scheme.
But there are some factors that strengthen the case for the UK in particular. Britons, in aggregate, are not known for excess saving, and their bank balances are not likely to remain high for long. They also take more foreign holidays than their European peers and this summer, at least, many will spend their funds in domestic resorts. UK consumers are no laggards when it comes to online shopping either; even before the pandemic, Britain stood out for the popularity of ecommerce and lockdowns have only boosted the change in behaviour.
There are structural factors too: flexible labour markets mean that workers may find it easier to come back to jobs in the reopening hospitality industry. The UK’s mostly consumer and services-based economy may have contributed to a deeper economic contraction than most rich countries but also gives it more room to expand. New forms of working and the mass experiment in how to work at home could have the greatest pay- off in services jobs too, if indeed it ever does lead to a boost to productivity.
Such a rebound is sorely needed. The UK suffered worse in the past year than many other comparable nations both economically and in terms of health. Its deeper recession is a result in part of differences in the way Britain’s Office for National Statistics estimates output. It uses methods that try to put a value on school lessons and medical operations that were cancelled during the pandemic rather than measuring the production of health and education services through public sector salaries. More worryingly for the country’s prospects, the bigger contraction reflects strict and late lockdowns, raising the risk of longer-term scarring.
Whatever structural advantages the UK enjoys, it also faces one big disadvantage: Brexit. So far the effects of exiting the EU, outside Northern Ireland, have mostly been felt by exporters facing higher costs when they sell into the EU. Eventually, however, when more stringent import restrictions are introduced later in the year, prices for consumers and businesses may start to rise. Labour shortages too, may increase cost pressures: pubs and restaurants are struggling to recruit, in part because many EU citizens left the UK during the pandemic and travel restrictions have prevented further international migration.
Britain has had a particularly hard past year — spending at least six out of the past 12 months under some form of lockdown — but the economic bounce back is unambiguously good news. The country will inevitably face challenges now in trying to return to normal, or creating a new one, and adjusting to changed trading arrangements with the EU. But it will at least do so with a stronger economy than many expected.
Source: Economy - ft.com
