Parliament has headed off for its summer break and so we’re entering ‘silly season’ with politics taking more of a back seat.
In the meantime, tensions between the UK and both China and Russia will likely be a rolling topic. Following the long-delayed publication of the report into Russian interference in the UK by Parliament’s Intelligence and Security Committee, we’ve seen the resurgence in calls to clean up London as a laundromat for dodgy money. As with China, links between UK politicians and Russian business and cultural organisations are likely to feature in the weeks ahead.
With Brexit talks stuck and the UK gearing up for no deal, the impact on business can also be expected to become more prominent. Research from the Institute for Government suggests three in five (60%) firms haven’t even begun to prepare for the end of the transition period. Oh, and there’s the return of schools of course. It’s at least reassuring that one leading scientist can’t point to a single case of a teacher catching the virus from a pupil, not just in the UK, but globally.
Rishi Sunak will no doubt be looking forward to putting down his bazooka and having a short spell of R&R. His ears must be ringing from the amount of ammo he’s blasted to shore up businesses and individuals in recent months. Around £190bn is being spent in direct support, with borrowing expected to be up to £350bn this year and the Bank of England (BofE) providing around the same in QE.
We don’t yet know if this bridging strategy is working. Andy Haldane at the BofE thinks we’re seeing a V-shaped recovery. The economy appears to have recovered half of the 25% drop in output it’s suffered. But we’re seeing huge job shedding that will continue – particularly amongst SMEs – as furlough is withdrawn in October.
The £9bn retention bonus announced by the Chancellor won’t have the impact needed to stem the tide. Much of it could go to firms that don’t need it (and it’s interesting to see some already say they won’t use it, following criticism of businesses that have accessed government support in recent months). A big question is what happens with consumer confidence and whether we enter a spiral of gloom. Perhaps we’re set for a ‘wonky’ V shaped scenario.
So far the markets have been prepared to lend to the Government at low rates, but it knows it needs to set out a credible plan to bring the public finances onto a sustainable footing. It can’t assume its borrowing costs won’t rise. So the Chancellor is now talking about the ‘tough choices’ ahead and has instructed departments to start the painful process of preparing for the spending review in the autumn. He has said the Government will: “Honour the commitments made in the March Budget to rebuild, level up and invest in people and places, spreading opportunity more evenly across the nation.”
The battle for who will pay is starting. If not general taxpayers and consumers, wealthy asset holders? If not existing pensioners, savers who benefit from higher rate relief? If not SMEs, digital businesses? Perhaps all of them will be called upon and more.
All this of course doesn’t account for the possibility of a resurgence in Covid-19 as we head into winter. I don’t want to end on a downer, but some (yet to be peer-reviewed) research confirms a marked correlation between the weather and the severity of the virus, as is the case with seasonal flu. Who knows, maybe we’ll all be required to work outside from November. Perhaps I should invest in a good Parka now.