Forecasts by the Bank of England of a ‘V’ shaped recovery were met with predictable scepticism as the pandemic made its reappearance early this year.
If the latest projections are believed, that is precisely what is going to happen, with output set to soar away by 7.25 per cent this year leaving jobs relatively unscathed.
The growth upgrade from the 5 per cent estimate in February is largely based on the assumption that as the economy is unlocked, some 10 per cent of the pent-up savings sitting in middle Britain’s bank accounts will be released. That is twice the amount previously expected.
Bank of England forecasts of a 'V' shaped recovery were met with predictable scepticism early this year. But if the latest projections are believed, that is precisely what is going to happen
Covid-19 may have hit the less well-off hard, but it has greatly increased the spending power of the well-heeled.
The fizz has been building up in the can so strongly that Andy Haldane, the Bank’s departing chief economist, voted at the latest meeting of the interest rate setting Monetary Policy Committee to scale back the Bank’s bond buying programme by £50billion.
He is a lone dissenting voice amid the groupthink on Threadneedle Street, and will be sorely missed when he heads off in June to be head honcho at the Royal Society for Arts.
By holding interest rates down at 0.1 per cent and through its big money printing during the pandemic the Bank has been a critical part of the recovery story.
Some credit must also go to Downing Street. By resisting popular calls for an earlier easing of lockdown, securing a brilliant vaccine rollout and providing a clear roadmap to re-opening commerce, the Government has provided some of the certainty craved by businesses and consumers.
Similarly, Chancellor Rishi Sunak’s extension of furlough, although ferociously expensive, means that the UK workforce is less scarred than its counterparts.
The strength of the rebound means that all of last year’s talk of moving towards negative interest rates has melted away. Instead, the debate has moved onto the timing of when Britain will need to move interest rates up to counter inflation.
The MPC believes that the perceived inflation scare, which sent bond yields higher, has been overdone. Nevertheless, a fierce recovery in demand for steel, semi-conductors and oil, together with Brexit friction at the borders, could send prices higher.
The Bank is likely to look through such one-offs this year, although there could be a slight pick-up in rates in 2022.
Such tightening as there is will likely come from paring back quantitative easing. Governor Andrew Bailey was at pains to make clear that although it will be slowing the pace of bond buying, it was aiming for the same goal, which is £150billion by year end.
The enormous pent-up demand at home is reflected in the latest forward-looking data for UK services which is at a 90-month high.
Britain may be an island but its open economy means that it will always be vulnerable to what is happening elsewhere, from the EU to India. That could eventually put the brakes on take-off beyond 2022.
Auld Laing’s Syne
The private equity assault on the FTSE 250 continues unabated. John Laing, founded in Carlisle in 1848, has transformed itself from a construction firm to a global expert on infrastructure.
It provides the kind of engineering skills that will be important to Britain as it builds back better, goes global and adapts to climate change.
Laing has also been hopelessly undervalued by investors, judging from a near 20 per cent surge in the shares following the interest of private equity kings KKR.
Veteran chairman Will Samuel and chief executive Ben Loomes, having presided over transformation, should not surrender at the first smell of cordite or see a bid as an opportunity to fill their boots.
At every stage, Rio Tinto’s handling of the Juukan Gorge travesty in Australia has been wanting. The result was the delayed departure of chief executive Jean-Sebastien Jacques and two other senior leaders, and the planned departure of chairman Simon Thompson next year.
In spite of losing a bonus of £2.7million, Jacques left with a pay check of £7.2million and a wodge of incentive shares worth £27million.
Small wonder then that 60 per cent of shareholders voted against the pay report. The case for clawback and redeployment of the money in support of harmed First Nation citizens is overwhelming.