It’s obligatory these days, even if you’re the chief economist of the Bank of England, to play the game of ascribing a letter to the likely shape of the UK’s economic recovery, so here’s Andrew Haldane’s take: “It’s early days, but my reading of the evidence is so far, so V.”
As a headline-grabber, it is excellent. Most of the forecasting world rejected the V-shaped thesis weeks ago. The IMF, as it knocked another chunk off its global GDP forecast for 2020 last week, summed up the mood: “A crisis like no other, an uncertain recovery.”
Haldane’s V-shaped claim, though, is supported by evidence, albeit of the sketchy “fast indicator” variety, meaning payments data, business sentiment surveys and suchlike. But the chief economist is right: those indicators currently suggest a materially faster recovery than the Bank was expecting in May.
That, though, is not much of a boast. In case anyone imagines a V-shaped recovery is now in the bag, read the rest of the speech. Two paths are possible in the second half of this year, said Haldane, and they lead to very different outcomes. One is the happy route of higher spending and lower unemployment. The other is the reverse – higher unemployment and lower spending. “As things stand, it is unclear which of these scenarios, or feedback loops, will prove the more potent,” said Haldane.
Yes, an awful lot now rests on the labour market. It is, unfortunately, very easy to see how the early V-shaped stirrings could be crushed by a surge in unemployment as the Treasury’s furlough scheme is wound down – it is due to taper from August and finish at the end of October. July has arrived already and still the number of furloughed workers is rising – up by 100,000 to 9.3 million, the Treasury said on Tuesday.
So take Haldane’s eye-catching V-shaped remark for what it is: a description of the early action in a long game. While the outlook may have improved since May, risks “remain skewed to the downside” and it’s vital to avoid “a repeat of the high and long-duration unemployment rates of the 1980s”.
Rishi Sunak, the chancellor, should take note. He’s probably delighted somebody’s talking about V shapes, but it’s the next step that matters. The biggest short-term danger to the recovery is that the end of furlough causes a relapse. Sunak should be prepared to extend if necessary for those sectors where demand can be expected to return within a reasonable timeframe. That would be a more useful measure than his boss’s weak attempt to dress up old infrastructure announcements as a “new deal”.
Aerospace: limiting the damage
The airline and aerospace industry, unfortunately for those employees whose jobs are now at risk, is probably not one where extra furlough support from government would make a meaningful difference. Demand is not coming back soon.
There was a feeling of inevitability about Airbus’s extreme restructuring, which envisages 15,000 job losses, including 1,700 in the UK. Less demand for flying means fewer orders for planes from cash-strapped airlines. If, as the entire industry seems to agree, it will take until 2023 to recover 2019’s level of activity, survival means fewer workers.
“Airbus is facing the gravest crisis this industry has ever experienced,” said chief executive Guillaume Faury, echoing last month’s analysis from engine-maker Rolls-Royce, which is cutting 9,000 jobs from its commercial aerospace division.
The best way for the government to limit the damage to the UK engineering base is to accelerate demand in the sectors it can control. So bring forward defence orders, speed up investment in renewable energy, and so on. And do it quickly.
It’s now or never for Standard Life Aberdeen
Three years after merger, Standard Life Aberdeen is back in the fresh start game. Stephen Bird, a Citigroup long server, will be the new chief executive, replacing Keith Skeoch, one of the architects of a deal that, in share price terms, has underwhelmed.
Picking an outsider looks wise since, whatever the official script says, tribal loyalties always take longer than three years to fade. The asset manager fudged the issue at creation by having Skeoch and Matin Gilbert perform an awkward “co-executive” dance, which never works.
Bird arrives with a reputation as a digital whiz (essential these days) but it’s really now up to the fund managers to produce the goods. Current choppy markets, with uncertainties in every direction, ought to provide fertile conditions for active managers to beat the passive tracking brigade. If SLA can’t step up in this climate, it never will.