You could think we are heading towards financial Armageddon if you have been reading the news over the last few days.
Warnings of an April cost-of living ‘catastrophe’ are being issued by the doomsters.
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.
Inflation is a serious problem that we are facing. This has alarming echoes from the 1970s. Protecting the vulnerable and those who are most in need of financial assistance is essential. Page 6 is the point of Age UK boss, who points out that we can’t allow elderly people to panic about rising costs and turn off their heat.
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.
It is true, however, that consumers are already concerned by inflation of 5.1% and it will rise. However, it’s also true that the average income is rising in real terms year over year (after adjusting for inflation).
Next, take overall growth – the key driver of jobs, prosperity, living standards and so on in this country.
Many reports indicated that the UK had been the worst affected by the pandemic. For example, the International Monetary Fund reported that our economy would shrink by nearly 10% in 2020.
While it could be true, many years later we find that they were incorrect, but IMF still expects 6.8% growth for 2021. It would mark the fastest increase since 1941 if that is true. The IMF predicts that there will be 5% growth in 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)
It’s easy to see where the point is, I believe. You can see the whole picture, but it depends on what aspect.
There is also a tendency in Britain to see the negative more than the good.
This is not a common sentiment. Many people across the developed world – albeit less so in booming China and India – display a similar negativity bias. This bias is stronger for people with higher education.
Steven Pinker, a Canadian psychologist who is known for his groundbreaking research in cognitive psychology gives us an insight. He discovered a type of intellectual one upmanship when complaining about contemporary society. You are viewed as an expert if you say things are worse. You are considered naive if you say things are improving.
Whatever reason, our pessimism can be a result of many things. It is usually absurd and nearly always paralysing.
Because everything is bad, you won’t be able to fix it.
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.
Three themes will dominate the economy in the next year according to me. The first is the fact that we are still at the beginning stages of our recovery from Covid-19. Positive. There is also the problem of inflation. This is negative.
Third, the global economy is undergoing massive structural changes as it adjusts to post-pandemic conditions and the UK adapts to post-Brexit. This, I believe, will be positive for Britain.
It is very simple to recover. There is much to be done in order for the world to recover. It may take several years. After a recession, which we’ve had many times in our history, there is always a period of good growth with occasional bumps.
The Bank of England began raising interest rates. Both the Federal Reserve in America, as well as the European Central Bank in the United States will follow suit (file image).
The UK is one of most open countries in the world for investment and trade. The UK is likely to get its fair share of the growing pie if the rest of the world enjoys a positive run. This five-percent growth, which the IMF forecasts to be good for Britain, would do just fine.
At a global scale, inflation is an alarming problem. Inflation in Britain is at 5.1%. This is a bit lower than Germany’s 6.8% and Germany’s 5.2%.
The Bank of England and American Federal Reserve have both begun raising interest rates. However, it is foolish to suppose that the quarter point increase in interest rates would keep energy costs down. While the Government may be able and willing to lower your gas bill, the Bank of England is unable to do so.
This is not a worldwide issue, and it does not benefit anyone with a fixed income, especially pensioners.
We can only hope that the inflation pressure will ease a bit by the end this year and that pay rates don’t continue to rise as much at the moment.
Inflation will soon be controlled. It is best to concentrate on those who are most in need. It could be extra assistance for the elderly or the poor, as well as tax reductions where necessary to calm the storm.
It is important to help those who are most affected. It could be extra assistance for seniors and the hard-up or tax reductions where needed.
And the third big feature of this year – the wave of structural changes raging across the world?
In the midst of an revolution it is difficult to know what will last and what will not. However, we know some aspects of online retailing’s shift will be permanent. We will continue to order stuff online and have it delivered. The High Street will rebound.
Working remotely will not cease to exist, but we’ll continue, in some way, as it was before. Although foreign travel may recover in a few small steps, I expect that business travel will decline dramatically.
We know that small and large businesses have been resilient to chaos and have learned new, more effective ways of doing business. There will be efficiency gains as chaos recedes. We are learning to do things differently – and better.
The same applies for trading with Europe. Exports to the EU seem to have increased while imports are down. This hasn’t been the catastrophe we expected (although some industries have had to make difficult transitions). Importantly, year two will be easier than the year one of post-Brexit’s transition.
That is the key point of 2022. The world has been dealing with hard times for a long time, but generally it is doing pretty well.
Great Britain is doing very well. I believe it will keep doing this.