The post-Covid economy faces an uphill battle

On the surface, the latest GDP figures offer considerable cause for celebration. Last year the economy grew at its fastest rate since World War II. The Omicron restrictions caused production to fall in December, but the release of these measures should limit the damage.

However, the underlying picture is not so positive. A worrying part of the recovery has been driven by government spending, including for the NHS, where productivity has fallen. The economy’s expansion over the past year may have been record-breaking, but its collapse the year before was truly catastrophic.

It’s also not clear where policymakers think future prosperity will come from. Tax hikes aside, the government’s economic agenda appears to boil down to spending more money on “left behind” sectors, forcing everyone into an expensive transition to net zero. These may or may not be laudable goals in themselves, but they do not constitute a plausible plan for promoting growth now and in the future.

In any case, short-term challenges can throw the economy off course. In the coming months, the Bank of England will have to decide whether to raise interest rates further to counter rising inflation. The consequences will be challenging, however it chooses to act.

Under the circumstances, it is somewhat surprising that there has been almost no political debate on these issues, apart from the occasional hand-wringing over the cost of living. We may be sleepwalking into an economic crisis with no apparent strategy for overcoming it.

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