The United Kingdom is experiencing strong growth after the 2020 lockdown collapse, but the end of furlough payments in September artificially propping up some parts of the economy, and inflation on the horizon are concerning, the Bank of England’s chief economist warns.
The economy is going “gangbusters”, Bank of England chief economist Andy Haldane told a radio show Wednesday morning, outpacing near-peers after a greater-than-average hit when the government locked down hard in 2020.
In remarks on LBC’s breakfast show reported by the Evening Standard, Haldane revealed the remarkable strength with which the UK economy was growing, as he said: “Growth across the UK is picking up at a real rate of knots, going gangbusters actually … that’s a great thing to see, certainly outstripping growth, not just in Europe, in pretty much most of the other G7 big advanced economies.”
Haldane’s comments follow April predictions by the International Monetary Fund (IMF) in April that the UK economy was to outgrow the Eurozone and United Stated by 2022.
Yet despite the economic bloom, serious risks remained. Parts of the economy are still enjoying being cosseted by the government’s ‘furlough scheme, where businesses and employees are paid to remain inactive in compensation for having to cease trading to comply with the terms of the coronavirus lockdown. This scheme is due to end in September and it may be the case some people may be returning to jobs that simply do not exist anymore, having had their ‘wages’ paid by the government since last year.
Haldane said the end of the scheme: “It’s still the case though that a bunch of businesses are still paused, a bunch of workers are still on furlough and therefore we need to keep up the momentum to get people back into work, to get those businesses back reopened and people back into pubs and restaurants, and to do even better growth-wise then from the already pretty punchy position that we’re in.”
Yet higher wages for those returning to work and high commodity prices can spell trouble for the economy overall, as inflation creeps towards — and may surpass — the two per cent government limit. The economy may “overshoot” two per cent, Haldane said, and this “would not be good news” for borrowing, government, business, or individuals, reports business-facing newspaper City AM.
The comments on morning radio are not the first time Mr Haldane has warned the UK economy risks overheating. Indeed, speaking on Tuesday the top economist said the UK housing market is “on fire”, caused by a growing gap between demand for houses and the number of houses available in the country. In short, the UK’s population — fuelled almost wholly by immigration — continues to rise quickly, while new house building is not matching that rise.
This imbalance, Haldane said, is a “pretty punchy rises in house prices” and growing inequality as houses become harder to afford, and those who already own them become comparatively wealthier as their assets appreciate, Bloomberg reports.
Inflation is not by far the only peril facing Britons economically in the post-corona age. One year of lockdown has been reported to have cost the economy some £250 billion, and the UK government had borrowed heavily to fund coronavirus relief programmes, leaving the prospect of significant tax rises to pay for spending a serious one.
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