In the wake of the Bank of England’s latest forecasts the media is full of talk of an economic “boom”.
💥💵📈
One headline this morning even calls it a *supersonic* boom.
What to make of that kind of talk?
A thread…🧵
💥💵📈
One headline this morning even calls it a *supersonic* boom.
What to make of that kind of talk?
A thread…🧵
...It’s true GDP growth of 7.25%, the Bank's latest forecast for 2021, would be the largest calendar year expansion since 1941 when Britain was still scaling up production to fight the Nazi menace...2/ 
...But, as we shouldn’t need reminding, this follows the worst year for the economy in three centuries in 2020...3/
...One of the most problematic tendencies of politicians and journalists when it comes to economic forecasts is to focus on rates of change rather than levels....4/
...And the *level* of GDP today is currently still well below where it was at the end of 2019.
& even if GDP did grow at the rapid rate projected by the Bank over coming months, by the end of this year we would *still* only be back to where we were before the crisis hit...5/
& even if GDP did grow at the rapid rate projected by the Bank over coming months, by the end of this year we would *still* only be back to where we were before the crisis hit...5/
...“That’s two years passed with no growth in the economy,” as the Bank’s Governor Andrew Bailey stressed on Thursday...6/
bbc.co.uk/news/business-…
bbc.co.uk/news/business-…
...Economic booms are when the economy grows more rapidly than previous expected.
This would not be a boom but rather us climbing out of a very deep hole...7/
This would not be a boom but rather us climbing out of a very deep hole...7/
...Now it’s true the Bank's latest forecast is stronger than it projected in February, reflecting the success of the vaccine roll out & adapability of businesses.
We seem to be climbing out of the hole faster than expected, which is certainly to be welcomed...8/
We seem to be climbing out of the hole faster than expected, which is certainly to be welcomed...8/
...Yet getting the right perspective on what’s happening in the economy is vital because it influences the climate around policy making and public expectations...9/
...Relative to where we expected GDP to be before the pandemic struck, the UK economy would *still* be languishing at the end of this year despite what people are calling a boom...10/
...Indeed, on the Bank’s current forecasts there would be a *permanent* gap.
Even with its upgraded forecasts the Bank is forecasting long-term economic scarring resulting from the pandemic of 1.25% of GDP, or £25bn... 11/
Even with its upgraded forecasts the Bank is forecasting long-term economic scarring resulting from the pandemic of 1.25% of GDP, or £25bn... 11/
...This represents the damage to UK productivity from the collapse of business investment last year & wasting of people’s skills and education from the disruption of the pandemic...12/
...Is that permanent foregone output inevitable?
Serious analysts such as @IPPR and @resfoundation don’t think it has to be & that if the Chancellor’s fiscal policy were more expansive and better designed we might eliminate that scarring entirely and boost livelihoods...13/
Serious analysts such as @IPPR and @resfoundation don’t think it has to be & that if the Chancellor’s fiscal policy were more expansive and better designed we might eliminate that scarring entirely and boost livelihoods...13/
...Impossible?
Those inclined to believe so might want to look at the latest projections in the US, where the $2 trillion fiscal stimulus of the Biden Administration is set to push the level of American GDP *above* its pre-crisis projected path this year...14/
Those inclined to believe so might want to look at the latest projections in the US, where the $2 trillion fiscal stimulus of the Biden Administration is set to push the level of American GDP *above* its pre-crisis projected path this year...14/
...Yes, some economists have warned of inflation in the US but note that under official projections (the equivalent of those of those of the Bank here) this American boom is achieved *without* generating excessive price rises...15/
...So, in the UK context, it’s arguable talking about an economic boom unhelpfully lowers our expectations & gives the impression economic policy is doing everything we can reasonably expect of it – which might not actually be true...16/
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