Britain’s remarkable recovery in the face of adversity | Patrick O’Flynn | Columnists | comment

Unemployment tended to rise more than forecast, productivity continued to lag, growth was lower than hoped, and investment often dried up as poor industrial relations deterred those looking for new projects. Britain has been dubbed the economic “sick man of Europe”.

While challenging times have returned – with the fallout from Putin’s war on Ukraine adding to the post-Covid cost-of-living crisis – we should also acknowledge some good news.

The UK economy has become remarkably resilient in the face of adversity and has indeed evolved into a job-creating phenomenon that is the envy of many of our competitors.

Unemployment during the pandemic has fallen far short of the levels initially projected and currently job vacancies are at a 20-year high of 1.3 million.

Figures released this week show production has once again made a remarkable recovery from a Covid wave. This time, Omicron failed to do the lasting damage many economists feared.

In January alone, the UK economy grew a remarkable 0.8 percent, compared to the expected 0.1 percent.

Much of the credit can be attributed to the government’s decision to resist calls from opposition parties for tighter social distancing restrictions in mid-December. Chancellor Rishi

Sunak was at the forefront of ministers who wisely held their nerve against criticism from the likes of Labour’s Wes Streeting for not going beyond the relatively lenient ‘Plan B’ regime.

And in England even these restrictions were lifted before the end of January.

The resulting additional growth is worth around £15bn, with another around £6bn in additional tax revenue likely to flow into Treasury coffers.

As a result, the UK economy is bigger than ever – almost a per cent bigger than it was in early 2020 when Covid descended from the proverbial clear blue skies.

When he comes out with his Spring Statement on March 23, we hope Mr Sunak will make it clear that the economy would be in much worse shape had he heeded Labor Party advice.

But he still has much more to do. Mr Sunak should use this newfound economic resilience to adjust the pace of his public finance plans in light of the severity of living standards millions are facing.

No one should run away with the idea that the Chancellor is spot on – the extra Covid spending and some severe short-term contractions in sectors like hospitality have done a lot of damage to the books – but it would be blunt not to acknowledge the skills of the economic engine he is drives allow him to be more ambitious to get us all through the energy price shock.

As he acknowledged yesterday, the economy is in a “strong position to meet the current cost of living challenges”.

While he is reluctant to cancel a proposed increase in Social Security aimed at raising funds for the NHS and the struggling social care sector, the case for a postponement of at least a year has only strengthened in recent weeks.

There is also growing talk in Westminster that Mr Sunak will be able to go further than he has been to cushion the very steep gas and electricity bill hikes ahead.

Both more targeted support for low earners and more support for middle earners, who will also take a heavy toll from the magnitude of price increases, are needed.

A chancellor who has recognized the state’s responsibility to intervene to prevent a downward spiral during Covid should once again be ambitious about what can be achieved.

Given the scale of what’s to come for energy prices, his sophisticated plan of lending £200 apiece to households to soften the blow and reclaiming it over the next five years looks like tinkering with the edges.

How much leeway the Chancellor has will largely depend on the latest forecasts from the independent agency for budgetary responsibility. But it already looks like borrowing for the current financial year will be around £20bn less than expected and faster growth should further improve the outlook.

It is understandable that after such a turbulent period, Mr Sunak should want to restore public finances.

But the post-Covid supply chain issues and the war in Ukraine together represent another massive shock to the system.

It seems an overall wiser approach to believe in the UK economy‘s ability to grow.

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