It is a miserable run-up to Christmas and the New Year, and we all know why. What we can’t know is how hard the Omicron variant will hit us all in the next few months.
I will take a break from the column for the holiday week, but as we head into it let’s just pause and think about what we have learnt about global economics and finance over the past year, and look for ways in which it will help us think about 2022.
The first thing to say is that 2021, despite everything, has been a year of reasonable success.
Rising inflation: ‘The lags between what the central banks do and what happens to price levels are uncertain but we know they can be very long,’ says Hamish McRae
We won’t have figures for several months, but it looks as though the US economy will have grown by 5.5 per cent, and be well ahead of its peak before the pandemic struck.
The UK may have grown by 6.5 per cent, but because we had a really bad hit last year, we will at best be only just back to where we were in January 2020.
However, job growth just about everywhere is strong, exceptionally so in Britain, with more people employed now than ever before and job vacancies the highest for at least 40 years.
This picture of a resilient recovery has been reflected in financial markets. The FTSE 100 index has been a bit of a laggard in global terms, but it is up more than 10 per cent in the year to date. The Dow Jones in New York is up more than 18 per cent, and the wider S&P 500 up 26 per cent.
Similarly, house prices. The Halifax figures for November show the UK up 8 per cent, and Nationwide up 10 per cent.
These numbers are not estimates by economists. They tell what has actually happened, and they are saying it hasn’t been a bad year.
We will need all our resilience to carry us through next year
It has of course been a terrible year for people in the hospitality or airline industries, and in human terms it has been a great strain for many. The events of the past fortnight are testimony to that, and I fear there is more to come. But in broad macro-economic terms it has been OK.
Or it would have been were it not for one huge cloud, one that will also hang over 2022. Inflation.
We have had the UK figures this week, showing consumer prices up 5.1 per cent and retail prices up 7.1 per cent. And we have had the Bank of England’s response in increasing interest rates.
There are similar increases in prices in the US and Europe – though the response in increasing interest rates there has not really begun. The trouble for most people, however, is that very few of us got 5 to 7 per cent increases in our incomes.
We are being squeezed, and though there will be solid increases in pay for people in strong negotiating positions, for many that squeeze from inflation will tighten in the months ahead.
And so for 2022? Look, we have learnt over the past 12 months how extraordinarily resilient the global economy has become.
For all the problems – the continuing pandemic, the glitches in the supply chains, the chopping and changing Government restrictions, the pressure to cut back on emissions, and so on – the recovery has continued. Governments have helped but the tough stuff has been done by businesses, large and small, all over the world.
The supermarket shelves have been stocked and restocked. The airlines have managed to keep flying. And the vaccines are being pumped out in huge quantities, with, detractors please note, the Oxford AstraZeneca one now the most widely produced in the world, with 2.2billion doses delivered.
We will need all this resilience to carry us though whatever is thrown at us next year. But what worries me most is inflation.
The lags between what the central banks do and what happens to price levels are uncertain but we know they can be very long.
Imagine you are filling a bucket. You keep on pouring the water in, kettle after kettle, and nothing seems to happen. Then you pour in one kettle too many and suddenly the water is all over the kitchen floor. I think that is what is happening now.
The central banks have been pumping the money in, year after year. Now, bang, they find they have flooded the world.
Inflation will eventually be brought under control. But until it is, we will need all our resilience to cope with the social and economic distortions it will cause.