Macroeconomics: UK economy, IB Economics

Larry Elliott's take on the post-coronavirus recovery - good, but not long-lasting. It's the wrong sort of recovery and will be frothy for a couple of years, and then growth will remain moribund.

Will we look back on the pandemic as a missed opportunity: my guess is, depressingly, yes, we will. 

It seems that the recovery continues but with various caveats: the economy is still nearly 12% smaller than it was in February, and the rate of recovery has fallen from 8.7% in June to 6.6% in July. 

V-shaped? It's looking less likely.

The latest retail data - and the number of retailers announcing job losses - isn't very encouraging. A near 40% decline in footfall doesn't make for good reading, and going forward a V-shaped recovery doesn't seem likely at present. 

Philip Inman's response to the latest economic data regarding the post-coronavirus recovery: it ain't going to be V-shaped. 

V-shaped recovery given a V-shaped response, it would seem.

Another reminder of the increased acceptance that any potential recovery is going to be slower than the most optimistic predictions about the speed of the recovery are going to be confounded. 

It seems that we are going to have to adapt to a slower recovery that we might have liked. 

The first of the Observer business leaders raises an interesting point about the conduct of monetary policy, suggesting that the Governor of the Bank of England, Andrew Bailey, is in danger of undermining the credibility of the central bank with his optimistic prediction of a V-shaped recovery. 

Since the Bank was granted independence in 1997, the three key elements of its success have been credibility, transparency and accountabliilty, and the leader implies that he's endangering the former. For my part, I think that this is harsh - Mark Carney's Forward Guidance was a misstep too - and no-one talks about that now.

Similar pronouncements to my last 'scoop', Professor Mervyn King has attacked the government's response to the pandemic suggesting that there's been a lack of help extended to small and medium-sized firms, and that any failure to look after them will delay the supposed V-shaped recovery. 

Faisal Islam reports on today's Bank of England press conference that forecast the largest recession on record, followed by a recovery, although not the V-shaped recovery and automatic bounce-back that was perhaps forecast a few short weeks ago.

Instead, the Bank is more cautious, arguing that any recovery is contingent upon the lifting of lockdown restrictions and the lack of a second spike of the virus, and anticipates that consumers are going to be more cautious about their future spending plans in the near future. Even then, some commentators have already suggested that this forecast is too optimistic - the prediction is for the economy to grow by 15% in 2021.

And here's the follow-up article - which suggests that without clarity regarding the coronavirus wage scheme, firms might end up laying off workers, rather than furloughing them.

As a result, the recover might be slowed, and there might be a decline in the size of the workforce - shifting LRAS leftwards - and potentially eroding human capital. Both of which might have longer-term scarring effects on the labour market, making the recovery less likely to be V-shaped. 

Larry Elliott responds to the latest GDP figures, as the notion of a V-shaped recovery recedes from view, and company failures and job losses hove into view.

An interesting angle on the prospects for recovery. Christine Berry writes in the Guardian, arguing that high levels of private debt are going to hobble recovery, and that a rise in borrowing as the result of coronavirus has exacerbated matters. 

Again, the prospects of a V-shaped recovery looks ever more distant. 

Howard Davies looks at the nature of the post-coronavirus recovery and conlcudes that, for all the optimism, the prospects of a V-shapeds recovery look to be waning: is spending really going to recover with unemployment reaching nearly 10%? 

I have to say, it's hard to disagree with his analysis.

I have to say that Andy Haldane's caveat is fascinating here - the UK will EITHER experience a V-shaped recovery or risks 1980s-style levels of unemployment. 

In essence, the "have your cake and eat it school of economics": that said, there's lots of interest here, not least the size of the monetary intervention, with £745bn of QE having been undertaken, equivalent to around 45% of UK GDP and larger than at any other stage in the Bank's existence, including the South Sea Bubble and the aftermath of either World War...

This BBC article looks at the effect of the coronavirus pandemic on the job prospects of the young, and notes that already many of them have been laid off, and for the remainder, the future looks bleak.

The worry is that this is likely to result in hysteresis, a situation where the unemployed are out of work and seeing their human capital eroded, making them less employable, and, ultimately, potentially resulting in people leaving the active labour force and being permanently excluded from the world of work.

Past evidence suggests that economic shocks such as this one, are likely to have this effect, and that is likely to make a V-shaped recovery less likely.

What shape do you like your recessions? V-shaped ,U-shaped or L-shaped. Probably not the latter. 

This BBC article identified four different recessions - three from the US, and two of them related to oil price shocks, and one from Japan to show different patterns of recovery. 

There's been a lot of talk about the current recession being V-shaped - but let's see shall we.

Larry Elliott offers a wry take on the current state of the UK economy and the policy tools available to tackle it. 

To paraphrase Harold Macmillan "You've never had it so bad" - and indeed that's true. But, hopefully, perhaps the worst has passed and the economy will recover, although with a distinctly unbalanced V-shaped recovery - 6 months of downturn, followed by 18 months of recovery. And as for policy tools, well, there's not much room for manoeuvre as far as interest rates are concerned, but the Bank of England assures us that something will appear...

This Newsnight piece looks at the longer-term implications of coronavirus for the UK economy in the longer-term.

It speculates that unemployment is going to rise to 10%, levels not seen since the 1980s. And contrary to what was perhaps first thought, it seems unlikely that the economy is going to bounce back, the so-called V-shaped recovery, particularly in certain sectors. 

And what of 'levelling up'? Well, this clip suggests that it is likely to be parked for now - however, the rhetoric is likely to remain bombastic. 

Yesterday's big story in the UK was the non-partisan OBR forecast that the UK economy could experience a 35% drop in GDP in Q2 2020. The Chancellor did his best to play this down, noting that it was "one possible scenario" - ha ha.

However, this has dramatic implications for the main macroeconomic objectives, for public finances, and for welfare more generally. 

It is also provoking debate about whether the economy will be able to rebound as quickly as its collapsed. And on this issue, more anon...