The Times - UK (2020-10-15)

36 2GM Thursday October 15 2020 | the times

Business

ployment declined only 1 per cent. GDP

also fell by 19.8 per cent in the second

quarter.

By keeping people in work but

reducing their output, productivity,

which is measured by dividing output

by either workers or hours, automati-

cally fell by an amount never seen

before.

Some economists hope that the

pandemic will improve productivity, as

working from home becomes more

efficient and jobs shift from low-value-

added sectors, such as hospitality, to

high-value sectors, such as technology.

Silvana Tenreyro, a Bank of England

policymaker, has said that a shift to

home working may boost productivity.

The Organisation for Economic Co-

operation and Development had a

clear message for policymakers

yesterday: Britain’s economy is at a

critical juncture, so you must tread

carefully to limit the long-term fallout

from the Covid-19 pandemic.

In its latest report on the British

economy, the Paris-based think tank

praised the government for protecting

jobs and incomes, but warned that a

resurgence in cases could undermine

that good work. “Measures to limit a

second wave of infections will need to

be carefully calibrated to manage the

economic impact,” researchers said.

Failure to do so could have long-

lasting implications. Throw in a

disorderly Brexit and these decisions

could lead to prolonged disruption to

activity and jobs. The OECD said that

this risked “exacerbating pre-existing

weak productivity growth,

inequalities, child poverty and

regional disparities”.

The think tank also updated its

forecasts to reflect how the impact of

the pandemic evolved over the

summer. These are the main points.

growth

Britain’s economy will shrink by

10.1 per cent this year as a result of

the lockdown. Although it will

rebound strongly by 7.6 per cent next

year, GDP will remain below its pre-

pandemic level for some time.

The organisation is less pessimistic

than it was in June, when it warned

that the economy could shrink by as

much as 14 per cent in the event of a

second wave. A stronger rebound

over the summer than had been

expected and a smaller rise in

joblessness forced researchers to lift

their forecasts, but the OECD said the

“outlook is exceptionally uncertain. A

resurgence of Covid-19, leading to

further lockdown measures, would

lead to weaker growth, higher

unemployment and even greater

pressure on balance sheets.”

jobs

The government’s job retention

scheme had been a “remarkable”

success, the OECD said. In July, it

pencilled in a sharp rise in

redundancies, lifting the

unemployment rate to as high as

10.1 per cent in 2020. It revised that

down yesterday to an average rate of

5.3 per cent. Joblessness is expected to

peak at 7.7 per cent before the end of

the year, a more optimistic forecast

than that of the Office for Budget

Responsibility, which sees

unemployment at almost 12 per cent.

debt

Britain must continue to support the

fragile economy, but the government

also should keep one eye on the

future. The national debt is expected

to hit 140 per cent of GDP next year,

its highest level outside of wartime,

and policymakers should start

planning for its return to a sustainable

footing. The government will have to

make difficult choices. Bringing

pension increases in line with average

earnings growth by scrapping the

“triple lock” would be a good place to

start. Higher taxes also should be on

the horizon.

productivity

Efforts to slash the public debt must

not come at the expense of growth.

By addressing Britain’s woeful track

record on productivity, policymakers

can facilitate economic growth, while

bringing down the debt-to-GDP ratio.

The OECD called for an ambitious

agenda of reforms that includes

greater digital skills training for low-

skilled workers. By improving access

to skills training, these workers would

be better equipped to find jobs in

Warning over tight electricity supply

Electricity supply margins are forecast

to be unusually tight in the next few

days as power plant shutdowns

coincide with low output for wind

farms, National Grid has warned.

In an unusual message issued via

Twitter, the Electricity System Opera-

tor — the division of the FTSE 100

company responsible for keeping the

lights on — said that it was exploring

options to boost supplies.

“We’re forecasting tight margins on

the electricity system over the next few

days owing to a number of factors

including weather, import and export

levels and availability of generators

over periods of the day with higher

demand,” it said. “Unusually low wind

output coinciding with a number of

generator outages means the cushion

of spare capacity we operate the system

with has been reduced. We’re exploring

measures and actions to make sure

there is enough generation available to

increase our buffer of capacity.”

Electricity prices had jumped amid

concerns about tight margins tonight,

Tom Edwards, an analyst at Cornwall

Insight, said. However, he said that

there should be “enough capacity to

avoid a stress event” as subsea power

cables between Britain and France had

the capacity to “swing back in this

direction” and import power. National

Grid later added that margins for today

were “adequate”.

Blackouts are extremely rare in

Britain, but the rise of intermittent

renewable generation has posed new

challenges for National Grid in balan-

cing supply and demand. Its warning

comes a week after Boris Johnson

committed to a renewed push for

offshore wind power, with plans for

enough turbines at sea to power every

UK home by 2030.

Tom Haddon, a utilities analyst at

PWC, said: “We need to ask questions

of policymakers on incentivisation of

batteries and low-carbon firm genera-

tion because this is a dashboard warn-

ing light on the journey to net zero.”

Emily Gosden Energy Editor

other parts of the economy. This

would help to mitigate the risk of

long-term unemployment.

brexit

A disorderly exit, without a trade

agreement with the European Union,

would have a big and long-lasting

impact on trade and jobs. Failure to

secure an agreement before the end

of the transition period on

December 31 would leave the

economy 6.5 per cent smaller over the

next few years than would have been

the case with existing arrangements.

Even with a deal, the economy will

still be 3.5 per cent smaller than if

Britain had remained in the EU.

‘Go carefully or risk wasting the

progress that’s been made so far’

1700 1750 1800 1850 1900 19502000

Real GDP

Year-on-year % changes

Projection

Output loss

Brexit impact

Real output per hour, change from start of recession %

Productivity

Government

gross debt

(% of GDP)

-10.1

7.6

5.3

7.1

-15.2

-8.4

138.2

140.1

2021

2020

Annual percentage change

Economic outlook

20

0

-1

-2

-3

-4

-5

15

10

5

0

-5

-10

-15

-20

r n

GDP

Unemployment

Fiscal balance

Free trade

agreement

plus end of

free movement

of people

plus further

services

liberalisation

0 5 10 15 20 25 30 35 40 45

Quarters since peak

35

30

25

20

15

10

5

0

-5

1979

2008

1973

Get in gear

No need for

austerity to

reduce public

debt, says IMF

Governments should not worry about

the black hole in their public finances

until the health pandemic has passed

and recovery is firmly established, the

International Monetary Fund has said.

Low interest rates have made high

public debt levels manageable and

although global debt will hit a record

100 per cent of world GDP this year,

policymakers should not rush to fill the

hole. While public debt will remain at a

historic high, the resumption of growth

next year and low interest rates will

stabilise borrowing and public debt.

Vitor Gaspar, the fund’s director of

fiscal affairs, said: “What we see is a

one-off jump up of debt in 2020,

stabilisation after 2021 and even a slight

downward trend in 2025. The differ-

ence between interest rates and growth

is not only negative, but more so than it

was before Covid-19. So low interest

rates play an important role in debt

dynamics.”

His comments imply that low

interest rates will help public finances

to self-regulate with no need for auster-

ity. The advice is striking as the IMF is

famous for its normally hawkish views.

In Britain, the IMF expects debt to

jump from 75 per cent of GDP in 2019 to

107 per cent by 2025 as the state

borrows £700 billion, or £25,000 per

household. Debt continues to rise as a

share of GDP through to 2025.

Of the G7 nations, Britain is forecast

to be running the third highest deficit in

2025, at 4.4 per cent of GDP, behind the

United States and France. Its net debt

position will be the third best in the G7,

though, behind Germany and Canada.

In its Fiscal Monitor, the IMF said

that governments were right to do

“whatever it takes to save lives and live-

lihoods” in the “acute outbreak phase”.

For rich countries like the UK, the

IMF argues that borrowing to finance a

green recovery could be a free lunch as

the debt would more than pay for itself

by creating jobs, encouraging private

investment and driving growth.

Gurpreet Narwan

Economics Correspondent

Philip Aldrick Economics Editor

Record fall in productivity

Britain’s productivity collapsed by a

record 21.1 per cent in the second

quarter as the economy crashed during

lockdown — although the furlough

scheme succeeded in protecting jobs.

The fall in output per worker undid

all the productivity growth since 1997.

On the measure of output per hour, the

drop was 1.8 per cent as hours worked

fell in line with GDP.

However, the Office for National

Statistics said that productivity esti-

mates “are subject to more uncertainty

than usual”.

Hours worked fell by 19.8 per cent

between February and June, but em-

Philip Aldrick