The economy is switching on again. On Wednesday, the chancellor has to switch tactics to keep it moving.
Whatever you think of the public health aspects of the government’s handling of the Covid-19 crisis – and it is hard to be kind – the economic damage seems to have been reasonably well contained. As Andy Haldane, the Bank of England’s chief economist, argues at the moment the economy is emerging from a V-shaped recession. Most economic data is rear-view mirror stuff. The numbers tell you what was happening a few weeks earlier. Real-time data – things like electricity demand or rush-hour traffic – give a glimpse of what is happening now. So the challenge is to keep it moving up the right-hand side of the V. This will not be easy.
The government’s economic programme so far has been to borrow almost without limit and pile the money into the economy in a number of different ways. But it can’t do that forever. At some stage money borrowed will have to be paid back in one of two ways. Either the debt will be reduced by higher taxes, which at the moment is unthinkable. Or it will be whittled away in real terms by having inflation higher than interest rates, in which case the burden will be on savers. (The small coterie of economists who argue that the national debt will never need to be brought down tacitly accept that the savers who hold the debt will end up being the payers.)
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