LionRed
The author is based in the UK at the moment (ex-pat Kiwi) and travels the world as a consultant in developing countries working on business development. As a result, he is totally cynical about NGOs, the UN and WHO etc. He is regularly exposed to contact with governments and diplomatic agencies. He has regularly commuted to Myanmar and South East Asia over the past three years so is able to understand what China is up to in the world.
The sun is still with us. The weather continues to be unseasonably fine with high temperatures and sunshine and there has been no sign of the traditional April showers. All of which means that we are constantly bombarded with the usual stories of breaches of the lockdown, excesses of police powers, poor behaviour at the supermarket and so on.
It is hard to think of the following without either smiling or putting your head in your hands out of despair. It was reported in Bedfordshire that a group of travellers couldn’t get their deceased body released from the Funeral Director’s mortuary. Apparently, the body was released to them after they made threats of burning the place down. The deceased was then transported 25 miles to the burial site in the back of a transit van, with the back doors open as the coffin wouldn’t fit in the van with the doors closed. On arrival at the cemetery, the coffin was greeted by 60 mourners, in breach of the regulations. After what must have been an interesting conversation given the kid gloves approach the police adopt towards travellers the burial went ahead with minimal mourners, all complying with social distancing. Of course, after the ceremony 25 vans were parked on a village green so that the travellers could attend a wake.
As if this wasn’t enough, there was the funeral of an alleged godfather of crime in Manchester. The funeral took place with hundreds lining the street, and many mourners at the cemetery ignoring the spacing regulations. Matters were compounded with the discharge of a firearm at the cemetery, resulting in a man being stabbed and rushed to hospital. Armed police were rushed to the incident, disarming the man and rushing him to hospital. An action which police say saved his life.
In a wonderful example of police speak the Manchester force commented:
Neighbourhood officers are continuing to sensitively and respectfully co-operate and engage with those people paying their respects to enable them to do so in a safe and orderly environment
The vast majority of the population are being reasonably compliant with the lockdown measures, with only the odd few miscreants being highlighted in the MSM. These, of course, fill the pages, along with the latest cause celebre which is the lack of testing being carried out. The Financial Times reported that testing stations have a capacity of 40,000 a day with only 18,000 tests being carried out. A privately operated testing centre in Chessington, Surrey managed to lose phone numbers, addresses and other contact details resulting in results not being sent to the correct people.
In a clarification explaining the guidelines (not the law, but the guidelines) the National Police Chiefs’ Council (NPCC) has informed the nation that driving to the countryside for a walk or to exercise the dog is reasonable “where far more time is spent walking than driving.”
Well, that is fine until my local Police Chief threw his two penn’orth in. Shaun Sawyer, the chief constable of Devon and Cornwall police criticised their guidance, which was issued to police forces in the UK.
He said:
“The National Police Chiefs’ guidance, which I think is some of the poorest guidance I have seen for a long time sadly, would allow people from outside the force (area) access to come in.”
Well no it doesn’t. The NPCC says reasonable travel is allowed.
“That’s the very thing that our communities don’t want.”
Again, he is wrong – we don’t want people travelling long distances to walk and exercise, but short distances are just what we need in this area.
He said people should not drive to go exercising, dog walking or surfing. Again wrong. All this is doing is putting a sense of fear into people who are worried that they are going to get fined by the police just for acting legitimately and worse, it is building up a reservoir of discontent which will disrupt civil society and undermine respect for the police.
It really is getting more and more like living in a parallel universe, one invented by Kafka or Jonathan Swift.
That’s enough of me ranting on about the social situation up here in the UK, I will try and give an economic assessment, which really does worry me.
The effects of the lockdown are starting to become clearer.
The Office for Budget Responsibility (OBR) published an illustrative scenario suggesting a large fall of 13% in GDP in 2020, but the latest IMF forecast for the UK was for a decline of around 6.5%, similar to our longer lockdown scenario. During this time, the budget deficit could rise to about 8% to 12% of GDP in 2020/21. This compares with 10% in 2009/10 after the last global financial crisis.
The OBR forecast comprised a drop in GDP of an almost unbelievable fall of 35% in real GDP in the second quarter, and an unemployment spike of up to 10 per cent – that is, 2 million additional people out of work. If a return to work commences as soon as possible, in say another three weeks then if we get an uplift in GDP in Q3, followed by ‘pre-virus levels’ of GDP in Q4 we arrive at the 13% forecast. My personal feelings are that this is a little optimistic, and it worries me. This would the one of the bigger annual falls ever – the biggest quarterly economic contraction since 1908, worse than the financial crash and both world wars.
Even if we get a bounce back quicker than expected, unemployment is not expected to fall at the same rate, leaving a huge social welfare bill.
The UK would seem to be set for an increase in net borrowing of 218 billion GDP this financial year. This would, at a stroke, wipe out all the recovery from the GFC that 10 years of austerity had given the UK. The resulting mix of low GDP and high spending is estimated to take UK debt figures to over 100 percent of GDP, dropping back to 95 percent by the end of the year. That again is a bit of a worry. Unfortunately, this will not affect sectors or regions equally, with obvious social implications. The OBR expects manufacturing, construction, retail, travel and food will suffer the most damage.
These calculations assume a three-month lockdown, followed by an additional three months with only some restrictions lifted. This explains the government’s near panic and semi-hidden clashes between ministers wanting an early resumption of economic activity and those wanting a longer lockdown.
Striking the right balance between the public health agenda and the knock-on effects of the lockdown is now becoming the major consideration. It also forecasts that the highest risk is to young people, aged under 25, who are disproportionately employed in the worst affected sectors – retail, hospitality and tourism. This will increase inter-generational tensions and have major social problems with metropolitan youth at a loose end.
So, faced with a declining GDP, a burgeoning deficit and high unemployment the government has to address the fact that welfare payments will be higher, the tax take will be lower and the economy will need to be balanced or run at an ever increasing deficit. This is funded by increasing taxes, lowering welfare benefits or increased borrowing. The UK currently has a high credit rating, but after the lockdown that will probably decrease resulting in increased borrowing costs. I am not looking forward to the next 12 months.
New Zealand will face similar issues with a best-case forecast from the treasury, of a year-end drop in GDP of 5% and unemployment of 8%. After the GFC New Zealand’s GDP declined by 2.2% and unemployment peaked at 6.9%.
The hope for the UK is that Boris Johnson is due back to work on Monday and hopefully he can give some leadership, bang a few heads together and start making some decisions. Unfortunately, I can’t see who in New Zealand will provide leadership when the situation gets sticky.
There is trouble on the way for both countries. I hope that Jacinda Ardern has learnt the difference between debt and deficit otherwise we are all up the creek.
I apologise for the dry bits of my letter, but whilst in lockdown, I found my economics 101 textbooks. The sun is still shining, but I fear that storms are on the way.
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