Christopher Snowdon

Why 2021 could be the year of economic Armageddon

The British economy is wrapped in bandages – we won’t know whether the wound has scabbed or turned septic until they are ripped away.

By the time the furlough scheme ends in April, whole sectors of the economy will have been out of action or severely incapacitated for over a year. Cash grants and the job retention scheme, both riddled with fraud, have propped up zombie businesses, some of which would have gone bust in the last year even without a pandemic. Of the businesses frozen in March 2020, how many will come out of hibernation in April 2021? How many people on furlough will discover that they have, in effect, been on gold-plated unemployment benefit for a year?

No one knows, but the signs are not good. In the third quarter of 2020, Gross Domestic Product – adjusted for inflation and population – was lower than it was at the end of 2004. And that was the quarter of growth, recovery and mild optimism we had before the tiers and lockdowns resumed. Things are unlikely to have improved in the fourth quarter and will surely go downhill in the next few months if, as seems certain, we have a prolonged lockdown while the vaccine is delivered.

The official unemployment rate is 4.9 per cent, up from 3.9 per cent a year ago. Although fairly low by historical standards, this figure is virtually meaningless in Rishi Sunak’s ersatz economy. Even with a generous furlough scheme in place, there are 819,000 fewer people in work than there were in February 2020 and the number of redundancies hit a record high between August and October. There is more to come when the bandages come off.

The public finances are a train wreck.

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