We all know that no economic forecast is ever fully accurate, but when the set of reasonably reliable forecasts is as consistent as is now the case, and as uniformly troubling, then it is time to sit up and take a fair modicum of interest.<\/p>\n\n\n\n
Let us start with the UK\u2019s Office for Budget Responsibility, generally respected as informed and relatively unbiased.<\/p>\n\n\n\n
This is a good place to start, as the OBR\u2019s forecasts provide the basis upon which the UK Government\u2019s budgets are based.<\/p>\n\n\n\n
The OBR expects the UK economy to contract by 11.3 per cent this calendar year. This is apparently the sharpest decline since 1709 when the Thames froze over \u2013 although the 1709 data may be even less reliable than today\u2019s!<\/p>\n\n\n\n
They then see growth for 2021 at 5.5% followed by 6.6% in 2022. That sounds superficially decent, but note two caveats.<\/p>\n\n\n\n
First, UK economic output \u2013 GDP being the key number \u2013 would not be back at where we were pre-pandemic until the last quarter of 2022; we will be returning from a very low base.<\/p>\n\n\n\n
Second, if there were to be no deal on Brexit \u2013 which sadly looks to be an increasingly high risk \u2013 then the OBR suggests that UK output would be reduced by 2% initially, and would still be 1.5% below their \u2018with deal\u2019 forecast in 2026.<\/p>\n\n\n\n
Looking elsewhere does not bring relief. Consider the EY ITEM Club, another generally respected source.<\/p>\n\n\n\n
They suggest growth in 2021 of 6.2%, marginally above the OBR figure, and 4.3% in 2022, significantly lower than OBR. On this basis, \u201cthe economy is not seen as returning to its Q4 2019 size until Q4 2023\u201d.<\/p>\n\n\n\n
This is based upon the assumption of wide availability of a Covid-19 vaccine in the first months of next year (fingers crossed) and \u2013 wait for it \u2013 a free trade agreement being reached between UK and the EU.<\/p>\n\n\n\n
Failure to reach such an agreement would, in their forecast, knock 2021 growth down to 5% and 2022 to 3.5%. This suggests that the UK would be lucky to regain the end-2019 level of GDP by the close of 2024 \u2013 four full years from now.<\/p>\n\n\n\n
Seeking international comparators does not ease concerns.<\/p>\n\n\n\n
The Organisation for Economic Co-operation and Development \u2013 OECD to its pals \u2013 sees the UK\u2019s recovery next year from the Covid-induced recession as slower than any other major economy save Argentina.<\/p>\n\n\n\n
UK GDP will, according to the OECD, be 6.4% lower at end 2021 than end-2019, while the world is up by a bare 0.6% and China up by nigh on 10%. All other major economies will remain below last year\u2019s peak, but barely so for the US, by 3% for the EU and just 1.7% for Germany.<\/p>\n\n\n\n
To find out more about how we can assist you with your Second Charge Mortgage please click here<\/a><\/em><\/p>\n\n\n\n There is no escape from the clear expectation that economic times will remain tough for the next couple of years, and particularly so in the UK. In some crucial aspects the impact will be more severe next year than has been the case in 2020.<\/p>\n\n\n\n Remarkably, while unemployment has eased upwards, the relative proportions of \u201cworking\u201d and \u201cworkless\u201d households had changed little in the year up to the third quarter in 2020. According to the ONS the share of \u201cworkless\u201d households had risen by only 0.2 percentage points.<\/p>\n\n\n\n But these are artificial figures, in that so many billions of pounds have been provided to households via the Job Retention Scheme. That has been hugely valuable, but will come to an end at some time in early 2021. Then unemployment will shoot up.<\/p>\n\n\n\n The OBR sees an increase from just under 5% to 7.5% in the middle of next year. EY suggest 7%, but there seems general agreement that the peak level of unemployment will have been put back a few months by the Chancellor\u2019s interventions and that peak will now be lower than previously anticipated. (But \u2013 excuse the cracked record \u2013 a touch higher again if there is no Brexit deal!)<\/p>\n\n\n\n So what to do? The first answer is definitively not to tighten the strings on the public purse either soon or sharply; a big \u201cNo\u201d to austerity.<\/p>\n\n\n\n The UK public sector deficit is set this year to hit nearly \u00a3400 billion or 19% of GDP \u2013 the highest ever in peacetime. Inevitably tax revenues have fallen catastrophically while spending has skyrocketed.<\/p>\n\n\n\n The stock of Government debt has sailed past 10% of GDP, but the cost of servicing this debt is remarkably low as interest rates stay at rock-bottom levels; and, with inflation low and stable, rates look set to stay low for a good couple of years yet.<\/p>\n\n\n\n Over that period some tightening of the public finances will be required, but with caution and with great care being taken over where to temper expenditure and where to edge up taxation.<\/p>\n\n\n\n This should, of course, be based upon economic and public welfare considerations, not party politics.<\/p>\n\n\n\n As the Fraser of Allander Institute has wisely stated: \u201cThe need to remain flexible in the face of huge ongoing uncertainty is inevitable.\u201d<\/p>\n\n\n\n In Scotland the UK\u2019s Spending Review should result in a healthy increase next year in our core funding, but there will be a major decline in the \u201cCovid consequentials\u201d. Those are the extra funds allocated to Scotland for special measures to cope with the impact of Covid on individuals and businesses, and they will fall sharply, meaning that difficult choices will have to be faced.<\/p>\n\n\n\n Again, economic and public welfare considerations should be paramount \u2013 and the Scottish Government could benefit from a careful read of the new report from Carnegie on Gross Domestic Wellbeing \u2013 as an alternative measure of social progress.<\/p>\n\n\n\n Didn\u2019t someone say that we need to \u201cgrow back better\u201d?<\/p>\n\n\n\n