Britain’s economy is on course for a rapid recovery from the coronavirus crisis, a senior Bank of England official predicts today.
Chief economist Andy Haldane says strong consumer spending has already helped the UK claw back as much as half of the losses triggered by the pandemic.
He insists ‘now is the time to see the economic glass as half full rather than half empty’ – as official statistics reveal a sharp increase in the number of white collar workers returning to their offices.
Responding to the figures, Chancellor Rishi Sunak said: ‘Our economy has been hit hard by the virus, but the statistics out today show promise of Britain bouncing back.
‘The recovery won’t be easy but if we all play our part, either by going back to work in our offices or enjoying a meal out, we can overcome this together and come out stronger than before.’
Writing in the Daily Mail, Mr Haldane says the economy is expected to expand by more than a fifth in the second half of the year, which would be ‘by far the fastest rise’ since quarterly records began.
He says: ‘The foundations for an economic recovery – a rapid one – are already in place, hiding in plain sight. Economic activity in the UK is not falling like stone, in fact it has now been rising for more than three months, sooner than anyone expected. It has also recovered far faster than anyone expected.’
His upbeat intervention comes after it was confirmed on Wednesday that Britain has plunged into recession, with GDP falling by a record 20.4 per cent in the second quarter of this year.
But official figures also revealed that after collapsing in April – the first full month of lockdown – the economy expanded by 2.4 per cent in May and 8.7 per cent in June.
An Office for National Statistics report yesterday suggested almost half of Britons commuted to work last week as pleas by Boris Johnson to return to the office appeared to be making an impact.
Under guidance, which came into effect at the beginning of the month, employers were urged to encourage white collar staff to go back to the office if it is safe to do so. Previously the advice was to work from home if possible.
The ONS report showed 48 per cent of people commuted to work last week, up from just 29 per cent towards the end of May.
It also showed that 23 per cent worked solely from home, down from a peak of 38 per cent in mid-June. And last week just 3 per cent of workers said they were furloughed, down from 15 per cent in May.
People right across the UK are feeling anxious. Confidence among households and businesses is low and uncertainty sky-high, not surprisingly given the steady stream of gloomy news.
Covid is a public health crisis and, for many, a personal tragedy. But it is an economic crisis too for many people.
During lockdown, economic activity across the UK collapsed almost overnight by around a quarter, the largest fall for a century. On the Bank of England’s latest forecasts, unemployment is set to rise to around 7.5 per cent by the end of the year, or around 2.5million people.
Facing unprecedented economic risks, governments and central banks around the world have provided unprecedented degrees of financial support.
In the UK, the Government has put in place support schemes such as the Coronavirus Job Retention Scheme, or furlough. There is no peacetime precedent for intervention on this scale. The Bank of England has cut UK interest rates to close to zero, along with an additional £300billion of so-called quantitative easing.
This support has acted like a gigantic insurance policy, protecting people’s incomes and jobs and reducing their borrowing costs. Without it, many millions more jobs would have been lost and borrowing costs on mortgages and loans would have risen.
The Bank will continue to support the economy until recovery is well under way, so this insurance policy should be a source of comfort and confidence. And there is a second reason for cautious optimism. The foundations for an economic recovery – a rapid one – are already in place, hiding in plain sight.
Economic activity in the UK is not falling like a stone. In fact, it has now been rising for more than three months, sooner than anyone expected. It has also recovered far faster than anyone expected.
Over the past three months, I estimate the economy has been rising, on average, by around 1 per cent per week. While that leaves activity well below pre-Covid levels, the UK has already recovered perhaps half of its losses.
The motor has been the British consumer. Retail spending had, by June, already recovered its pre-Covid levels.
Facing shuttered shops, people spent their money differently. While high streets remain quiet, online sales have shot up by over 70 per cent. Restaurant and pub takings are still well down, but spending on takeaways, electrical goods and DIY products has rocketed.
The housing and car markets have also bounced back to pre-Covid levels, again far faster than expected. The Bank expects this recovery to continue. While uncertainty is great, GDP is expected to rise by over 20 per cent in the second half of the year – by far the fastest rise since quarterly records began.
The recovery in jobs will take longer. Nonetheless, as spending and business confidence have picked up, risks to jobs have receded too. The Bank’s latest forecast suggests around 700,000 fewer jobs would be lost than it expected three months ago.
Uncertainty is still high and concerns about the virus are real, as the pick-up in new Covid cases illustrates.
But, at uncertain times like this, it is important that good economic news is not drowned out by the bad and the ugly.
Fear can be as contagious as the virus itself – and, left unchecked, could all too quickly become self-fulfilling. That is why the insurance provided by the Bank and the Government is so important.
We should recognise the economic momentum already in place and the opportunities that lie ahead.
Having recovered half of its losses, now is the time to see the economic glass as half-full not halfempty. Public confidence is contagious too, generating a virtuous circle of spending, jobs and incomes.
At difficult times like these, boosting confidence about our financial future would reap its own economic reward.