I am able to give you a cast iron guarantee that the UK economy, as measured by GDP, will bounce substantially this autumn. In fact, I can even tell you that it’s going to do so in September. Note that this is a guarantee, not a reading of the economic tealeaves.
I’ll also lay very good odds that near all of the British press will get this wrong. Those parts of it that don’t read this piece that is. The reason is simple.
There’s good reason to think that the bounce is happening anyway. Here’s the Flash PMI:
Everything that’s made is made out of something, So, go ask the purchasing managers what they’re buying to make stuff out of and you’ve got a pretty good idea of what people are planning to make in the next few weeks. Set that to an index, 50 is flat, below is contraction, above expansion, and you’ve a forward looking measure for the economy. It’s pretty accurate too as experience tells us.
Above 60 is Boom City, this is just scraping over that so we’re in Boom City right now. As, of course, we should be with the lockdown really ending and we’re all able to get back to doing things. So, cool, we expect substantial clawback of the GDP we lost.
But to my guarantee:
The UK’s fall in GDP was significantly higher than any other comparable economy. Near twice most others in fact. As to why, well, much of it was concentrated into a shorter period which always makes things look worse. Perhaps there was also something wrong with what was done, that’s always possible. The intellectual and management competency of the British state is not held in high regard around here.
However, one reason was that the Office for National Statistics measured things properly.
Normally in GDP we say that it’s just too complicated to work out what is the value of the stuff government gifts us off the back of our tax money. A pity, because some of it is indeed valuable, much of it not so much. But that’s the way it is and we measure instead by saying that it costs this and that much so therefore the value of it is exactly this and that much. As opposed to everything else where we measure the value of what is actually produced.
Well, OK, that’s just the way it is done. Except ONS noted that the NHS decided to treat nothing but Covid for months. Schools would teach the kids of key workers – as a form of daycare – and nothing else. There was obviously a certain fall in output in both those sectors, even as the costs of provision stayed static. ONS has estimated that fall in output and applied it to GDP – one good reason why UK GDP fell more than everywhere else where they did not make this adjustment.
OK. So, what’s going to happen now? The NHS is beginning to treat cancer patients again, the hospitals are opening up to all the other diseases we are prey to. The schools go back in a couple of weeks. So, ONS is going to reverse that portion of the GDP decline. It’s pretty obvious that most of that will hit in September as well – numbers that will be reported toward the end of October or thereabouts.
Thus my guarantee. I am reasonably certain, from reading the runes like the PMI and so on, that UK GDP is going to bounce – sorry, is bouncing, will in the future be reported as having bounced – simply because it is recovering from the lockdown. My guarantee is that there will also be a substantial bounce reported as a result of ONS noting that the skools’n’ospitals have reopened.
The recovery is going to be V shaped if only for this reason alone. You may cut out and keep this to measure which parts of the media manage to get it right when it is reported.