Despite politics and some fearsome statistics, Britain isn’t doing badly thanks to all that stimulus.
Britain certainly feels fragile at the moment with runaway inflation, war in Ukraine and all manner of local difficulties plaguing the UK body politic.
If the world tips into an energy shock recession, then this rainy, small crowded island nation ought to hold up better than most. With full employment, a strong banking sector and robust household and corporate balance sheets — and the ability, despite what the last chancellor said, to add more government fiscal stimulus — any downturn can be mitigated.
That potential fiscal splurge is hard to model into economic estimates, so be careful when listening to some of the more apocalyptic forecasts. The OECD, referenced often of late, has a particularly poor track record in predicting UK growth. What matters is that the Bank of England has renewed confidence to continue its rate-hiking cycle to combat inflation. It is in a demonstrably better situation than the European Central Bank, which is still stuck on heavily negative interest rates.
None of this means recession is off the table. Indeed, for many it feels like we are already in one. Economic growth has been flatlining in recent months and the cost-of-living crisis is very real for many. Inflation is almost certainly headed into double figures by autumn, but ought to stabilise later this year before turning down swiftly next year — unless Russia shuts off energy supply to Europe.
The most compelling strength of the UK economy is employment. A cost-of-living squeeze really does become a wider crisis with sharply rising unemployment. The herculean efforts of Sunak’s furlough employment scheme may seem long gone but it kept companies and employees afloat during lockdowns. Unemployment stands at just 3.8% with vacancies of 1.7-million. That is about as good as it gets.
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