HAMISH McRAE: Doomsters would have you believe we’re facing economic Armageddon… hard facts tell a VERY different tale

If you’ve been following the headlines over the past few days you could be forgiven for thinking we’re heading for some sort of financial Armageddon.

The doomsters are out in force, warning of a cost-of-living ‘catastrophe’ hurtling towards us in April.

The Resolution Foundation think-tank says families will see £1,200 added to annual bills because of soaring gas prices and looming rises in National Insurance.

It is true that we face steep inflation that has worrying echoes of the 1970s. And it is vital that we protect the poorest and most vulnerable from serious financial shocks. As the boss of Age UK points out on Page 6, we cannot allow a situation where elderly people turn off their heating in a panic over surging bills.

But the hard facts about Britain’s economy – and our remarkable bounce back from the ravages of lockdown – tell a very different story to the one those determined to talk down Britain would have you believe.

The Resolution Foundation think-tank says families will see £1,200 added to annual bills because of soaring gas prices and looming rises in National Insurance (stock image)

Let me explain.

To start with, we have a stronger job market than at any time in most people’s lives – certainly since I began work in the 1960s.

The most recent official statistics show there are more job vacancies than ever before in our history – more than 1.2 million to be precise. 

Meanwhile, it is true that consumer inflation at 5.1 per cent is already a real concern, and will go higher. But it is equally true that average earnings are up in real terms (that is, after allowing for inflation) by 3.1 per cent year on year.

Next, take overall growth – the key driver of jobs, prosperity, living standards and so on in this country.

There were many reports that the UK was one of the hardest hit by the pandemic. The International Monetary Fund (IMF), for example, reported our economy shrinking by nearly ten per cent in 2020. 

That may be true (though we often find, years later, that the stats were wrong), but the IMF also expects growth in 2021 to have been 6.8 per cent. If that turns out to be right, it would be the fastest growth since 1941. Furthermore, the IMF expects five per cent growth this year.

To start with, we have a stronger job market than at any time in most people’s lives – certainly since I began work in the 1960s. The most recent official statistics show there are more job vacancies than ever before in our history – more than 1.2 million to be precise (stock image)

You start to see the point, I hope. The economic picture depends on which aspect you look at.

And in Britain there is a tendency, at least among a sizable chunk of our society, to focus on the negative rather than the positive.

On that score, we are not alone. Many people across the developed world – albeit less so in booming China and India – display a similar negativity bias. And the better educated people are, the stronger that bias seems to be.

Steven Pinker, the bestselling Canadian professor of cognitive psychology, gives us a clue to why. His research identified a form of intellectual one-upmanship in complaining about modern society. Say things are getting worse and you are seen as a sage. Say they are getting better and you are classed at best as naive and at worst as a fool.

Whatever the reason for our pessimism, the plain truth is that it is often absurd and almost always deeply paralysing.

If everything is terrible you can’t fix things that need fixing because you don’t know where to start.

That is not to defend blind optimism – and there have to be real concerns that financial markets may have become over-optimistic, with the FTSE 100 roaring to its best year since 2016. It is simply to say that we should look at the world economy – and Britain’s place in it – with a calm and balanced eye, and ignore anyone who twists the data to score political points.

In the coming year, I think there will be three big themes that dominate our economy. One is that the world is still in the early stages of its recovery from the carnage caused by Covid-19. That is positive. The second is that there is the gnawing problem of inflation. That is negative.

And third, there are huge structural shifts taking place as the world adjusts to a post-pandemic economy and the UK to a post-Brexit one. That, I hope, will on balance be a positive for Britain.

The recovery point is simple. The world is still putting everything back together again, and that will take several years. But after a serious recession (and my word we have had that) there are always several years of decent growth, interspersed with bumps along the way.

The Bank of England has started to raise interest rates and the Federal Reserve in America and the European Central Bank will do the same (file image)

For the UK, as one of the most open economies in the world to trade and investment, this is important. If the world has a good run, and it is hard not to see this as a year of solid growth, the UK will get its share of the expanding cake. That five per cent growth the IMF expects would be just fine.

Inflation is a huge worry at a global level. The UK inflation rate, at 5.1 per cent, is actually a little lower than Germany’s 5.2 per cent and a lot lower than the 6.8 per cent in the US.

The Bank of England has started to raise interest rates and the Federal Reserve in America and the European Central Bank will do the same. But it would be daft to assume the odd quarter point on interest rates will hold things down when energy prices are soaring. The Bank of England cannot do anything to cut your gas bill (although the Government can and might).

And saying this is a global issue does not help anyone on a fixed income, particularly pensioners.

The best hope is that, by the end of this year, the inflation pressure will have eased a little and pay rates have kept rising as they are at the moment.

Eventually, inflation will be brought under control. Meanwhile, the thing to do will be to focus on helping those hardest hit. That could mean extra support with bills for the elderly and hard-up, or cutting taxes where it helps to quell the storm.

Meanwhile, the thing to do will be to focus on helping those hardest hit. That could mean extra support with bills for the elderly and hard-up, or cutting taxes where it helps to quell the storm (file image)

And the third big feature of this year – the wave of structural changes raging across the world?

It is hard when you are in the middle of a revolution to see what is transient and what will be permanent. But we do know that some of the shift to online retailing will stick. The High Street will recover, but we will go on ordering stuff and having it delivered as well.

We will go on, to some extent at least, working remotely more often than we used to. Foreign travel will recover, but only in fits and starts, and I suspect business travel will be radically reduced.

All we know for certain is that businesses large and small have not only proved very resilient in the face of chaos, they have also learnt new and more efficient ways of working. So as the chaos retreats there will be net gains to efficiency. We are learning to do things differently – and better.

That also applies to trade with Europe. It does look as though exports to the EU have held up, while imports have fallen. It certainly has not been the disaster we were warned about (though for some industries, the shift has been tough). The important thing is that year two of the post-Brexit transition will be easier than year one.

And that is surely the big point about 2022. The world has been coping with tough times, and in the main coping pretty darned well.

The UK is coping pretty well too. My judgment is that it will continue to do so.

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