We are living through extraordinary times and the combination of Covid-19 and the lengthy lockdown make it hard to read too much into the economic data.
But there are discernible patterns. British businesses are borrowing as if there were no tomorrow, with the Bounce Back loans for small enterprises gobbling up £21billion.
The Government’s 100 per cent guarantee was designed to unblock the hold-ups at the High Street banks, and it has done that with brass knobs on.
The ultimate cost to the Exchequer, when the slump hits hard, cannot be underestimated.
Which brings us to the consumer. Usually the biggest worry in the UK is the build-up of consumer debt. But in recession households are more cautious.
After the financial crisis consumer debt dropped dramatically from the peaks seen before the banking implosion. In April, £5.3billion of household borrowing was paid back. That has never happened before.
With most of the shops closed it is not entirely surprising. However, with uncertainty around jobs as furlough winds down, resuscitating the spending habit will be a formidable task. A housing recovery would be one path to growth.
Mortgage approvals collapsed in April from 56,000 to under 16,000. The monthly drop in May of 1.7 per cent in house prices reported by the Nationwide is the biggest decline since February 2009 in the slipstream of the financial crisis.
The best hope for housing will be fantastic mortgage deals, with the bank rate at just 0.1 per cent, and the impact lockdown has had on aspirations for more space and gardens.
All of this will feed into the narrative for Rishi Sunak’s mini-budget in July. Any thought that the Chancellor will use it to rebuild the public finances is fantasyland.
The Chancellor needs to revive the confidence of households and enterprises. A temporary cut in employers’ national insurance is a good way of encouraging firms to keep staff working or to take on new workers. A reduction for employees would mean more cash to spend.
The most direct way of encouraging consumption would be a temporary cut in VAT. This device was used by former Chancellor Alistair Darling during the financial crisis.
Another measure might be reform of the apprenticeship levy. The money is being collected but is not spent well in terms of the tech training required to prevent young people becoming a lost generation.
The Chancellor has been amazingly responsive to the needs of business and workers in the pandemic.
He now needs to rev up output.