Exit the danger of Covid recession lurking

Exit the danger of Covid recession lurking



While browsing on Airbnb this week, I found out that I rented a tent in the Lake District next month for £163 a day.It’s gone before I figure out it’s going to be a week (£1,141), and there is probably someone more willing to pay the odds of seven nights under the canvas of England than I do. It’s raining.

When we got rid of the blockade, the demand for domestic holidays was very strong, and almost anything would happen, at any cost. I don’t blame the lodging company-campground is a business activity, not a public service. They can charge what they think the market can afford, and obviously many people are willing to pay.

The government is suitable for us to go out and consume. After all, in order to promote economic recovery, nothing can promote the recovery of the United Kingdom more than consumer spending, which is usually driven by consumer credit. If the money goes to industries destroyed by the pandemic, such as the hotel industry (including camping), so much the better.Newest Bank of England Quarterly credit reportThe report released this week shows that loans are flowing quickly, whether it is mortgage loans or consumer purchases.

The surge in spending has pushed up prices, not just holidays.As also reported this week, the inflation rate in June jumped to Annual interest rate 2.5%The 0.4% increase in February now looks very distant.

But the official position of the Bank of England has not changed: Don’t worry, this is a short-lived one, and once the post-Covid recovery stabilizes, it will disappear. Interest rates will remain at an ultra-low level.

If the bank is right, we should see price increases stabilize. But there are some worrying signs that they may not, especially in the job market. Employers in certain industries face local labor shortages. Transportation companies have increased wages by 25% in an attempt to retain and recruit employees, while the government is relaxing working hours regulations to allow drivers more time to drive.

Special factors are involved-especially The exodus after Brexit EU workers including drivers. But as bars, farms, and construction companies also report recruitment challenges, these special factors will soon become more common. Wage increases are what economists call stickiness-they usually do not reverse.

In these Express concern Concerning inflation risk is Michael Sanders, who this week became the second listed member of the B0E Nine-member Monetary Policy Committee.He called for “appropriate tightening [monetary policy] attitude”.

It will take us a few months to determine whether the inflation surge is short-lived or a more dangerous thing. And there are some countervailing forces involved.Crucially, the government is withdrawing its pandemic support plan, especially Vacation And temporary Universal credit enhancement It all ends in September.

When employment subsidies are eliminated, troubled companies are expected to accelerate layoffs, especially in industries where the pandemic has exacerbated disruptive technology-driven changes, such as retail. If the employer swings the axe, the salary increase may also be restricted, and with it comes the risk of general inflation.

But at the same time, rising prices have caused pressure. Obviously, for those camping at a price of £163 per night, the annual price increase of 2.5% is not a big problem. But not everyone is so lucky. Given the 20% increase in gasoline prices in June, some people will think twice.

As we all know, the impact of the Covid recession is very unequal. Although the wealthy people generally do well financially, the poorer people suffer. Compared with the rich, they not only endured the pain of the disease itself, but were also more likely to lose their jobs and cut their wages.

Although the rich generally increased household savings, mainly by reducing leisure spending, thereby reducing the country’s consumer credit level, poorer households had to use cash reserves and/or increase debt. Resolution Foundation, A think tank that focuses on disadvantaged groups found in a June poll that people with the lowest income are more likely to see savings fall from pre-crisis levels (32%) rather than rise (12%). Among the high-income groups, only 10% had a decline in savings, while 46% had an increase in savings.

It’s more than just tightening the belt. StepChange, an organization that supports those struggling with debt, said the number of people seeking its services jumped from 15,000 new customers per month in January to 19,000 in June. This is just a small sample, because other groups also provide similar services, such as Citizens Advice.

Sadly, there are signs that this inequality will continue into the post-Covid recovery. Not only did inflation affect the poor more than the rich, but so did the devastating effects of layoffs and the end of pandemic support.Pablo Shah, management economist Economics and Business Research Center, Said: “A difficult period is coming.”

This is bad news for those struggling with debt. StepChange urges people in trouble to contact support groups and develop an affordable repayment plan with their help. Creditors, including financial companies, are often required by regulators to respect these arrangements-and refrain from taking legal action when these arrangements are in place.

However, if the lives of people who are heavily indebted really become difficult, then even those who have not felt too much pressure will be affected. A study by the Bank of England last month Pointed out that Covid’s decline was unusual because the “unprecedented” level of government support stabilized most household budgets. However, it warned that there is still a lot of “uncertainty”, including the evolution of the pandemic, the pace of economic recovery, and the government’s potential response. “Household debt may play a bigger role in the new crown crisis.”

In past crises, household credit problems often spread from debt-laden households in the entire financial sector, triggering instability. If inflation forces the authorities to raise interest rates as soon as possible, even those who may be happy today with increased credit card borrowing or mortgage loans may feel uncomfortable tomorrow.

Remember, the upcoming layoffs may not be limited to low salaries. In the retail industry, they not only attacked shop assistants, but also attacked middle and senior managers.John Lewis confirmed this week that it is cutting 1,000 executive roles Above 2,500 last year. There will be others. The decline of the poor may affect the better.

Stefan Wagstyl is the editor of FT Money and FT Wealth. e-mail: [email protected]. Twitter: @stefanwagstyl


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