ALEX BRUMMER: A recovery like no other

Following much deliberation, my family decided to go green and ordered an electrified Volvo.

We were given an original delivery date of September and in anticipation ordered and paid for a charging pod on our driveway.

But with each passing week, the delivery date moves further into the distance, with December 21 the latest notified arrival and the delay attributed to semi-conductor shortages. 

As Britain pulled out of the pandemic, manufacturing was remarkably robust, taking up the slack from a weakened service sector affected by lockdowns and social distancing

This immediately came to mind when the mildly disappointing May output figures were released, showing sub-octane 0.8 per cent growth against the 1.5 per cent projected.

As the nation pulled out of the pandemic, manufacturing was remarkably robust, taking up the slack from a weakened service sector affected by lockdowns and social distancing. 

In the last two months, industrial production has been under strain. It fell in April as a result of North Sea disruption and in May (and perhaps subsequent months) as a consequence of microchip shortages. Motor production lines have shut down and workers have been sent home.

There is no shortage of construction projects, as anyone counting the cranes over city skylines could testify.

House building is booming, supported by Help To Buy, record low interest rates and the evaporating stamp-duty holiday. One of the wettest Mays since 1862 might explain the stumble in the latest data.

As efficient as it is that the Office for National Statistics has moved from quarterly projections of gross domestic product (GDP) to monthly reporting, there are always going to be more kinks in the statistics over shorter time periods.

It is among the reasons why quarterly reporting of company results has been criticised for encouraging short-term thinking.

The reality is that the economy is still recovering nicely and the services sector is roaring back. Output in the hospitality industry jumped by 37.1 per cent in May and as restrictions are peeled away it should remain robust. 

A potential obstacle identified by Pantheon Macro is the Test and Trace ping, which may have kept as many as 410,000 people at home isolating in the week ending June 30.

Nothing more exemplifies the inherent conflict between the goals of stifling infections and re-opening the economy.

There is no reason to be despondent about the recovery. Output over the last three months advanced at a 3.6 per cent rate, which suggests the coiled spring is loosening but not quite as rapidly as hoped for.

But with planes returning to the skies, aircraft orders picking up and the US banks in London tolerating no nonsense about people working from home, there is momentum. More Euro 2020 cheer could help unlock precautionary personal savings.

The dilemma for politicians and officials is how soon to remove the jug of Pimms. The Office for Budget Responsibility (OBR) fiscal report this week cautioned the Government that it was facing £10billion of unfunded departmental spending over each of the next three years. That may explain why Chancellor Rishi Sunak hinted that he may unwind the triple lock on pensions.

At the Bank of England, governor Andrew Bailey is sticking with the view that the rise in inflation is temporary and there is no urgency to ease up on money printing as recently departed chief economist Andrew Haldane urged. 

No central bank wants to be blamed for halting an upswing. A recent feature of the public finances is how well tax receipts are responding to the upturn, bolstering the case for keeping policy loose.

Labour’s latest economic strategy is to talk about delaying the end of furlough, protecting jobs and buying British.

With jobs bottlenecks building up in transport, hospitality and healthcare, the sooner the safety net is removed the more quickly people could be moved from a holding pattern into real employment.

The biggest surprise of all from the Covid economy is the low jobless rate at 4.7 per cent (almost half that on the Continent) and a rise in payrolls.

Making and buying British is a fine idea. Much more important for the UK’s open economy, dependent on the trade in services, is recovery elsewhere. As The Economist notes the global economic cycle ‘has been frantic, leaving the slump far behind’.

Even the monetarists at the European Central Bank have come round to the idea that a little more inflation is harmless after the output losses of the pandemic.

Delta variant notwithstanding, the UK looks to be set fair.