A shot of Christmas cheer: Britain faces formidable problems, but let’s not forget we possess formidable assets, says RUTH SUNDERLAND
- Optimism has been out of fashion in 2022
- Those of us who like to look on bright side when we can have had a tough time
- But are there reasons to hope it will be better next year?
- The answer is yes, with a bit of luck
Optimism has been out of fashion in 2022. After two years of Covid and lockdowns, the perceived threat from the virus began to recede, only to usher in Putin’s war on Ukraine and the cost of living crisis.
Those of us who like to look on the bright side when we can have had a tough time of it.
But are there reasons to hope it will be better next year? The answer is yes, with a bit of luck. Analysts at Deutsche Bank have gone so far as to publish a Christmas Special, listing reasons for good cheer.
Reasons for good cheer: Analysts at Deutsche Bank have gone so far as to publish a Christmas Special
Number one is that economists believe inflation has probably passed its peak. In the UK, it fell to 10.7 per cent in November from 11.1 per cent the previous month – still horribly high, but heading in the right direction.
It is only one month’s data, but there are grounds to believe it is not a mere flash in the pan. Global oil prices have dropped significantly as has the cost of filling up at the petrol pumps. Putin’s ability to weaponise oil and gas has been curbed because the UK and other European countries have moved to reduce their dependency on Russia.
Still, inflation is a stubborn and insidious foe. Putin has begun to step up his aggression in ways that exacerbate the energy crisis, and there could always be another shock lurking in the financial system.
The effects of China coming out of its Covid deep-freeze are one big unknown when it comes to global inflation. It will certainly be a while before we approach the Bank’s 2 per cent target.
But, as the analysts at Deutsche note, there has been an improvement in global supply chains, which has gone largely unnoticed.
There are some indications that recent labour shortages in the UK may be easing. Some of the nine million or so Britons who are ‘economically inactive’ are returning to work, including fifty-somethings who took early retirement in lockdown.
On the subject of the labour market, without underestimating the misery created by the rail, post and nursing strikes, we are not back in the 1970s.
Today’s industrial actions, Deutsche’s figures show, ‘pale in comparison to the 1970s and 1980s.’
Despite the antics of Mick Lynch, unions are a much less powerful force than they were 40 years ago, when the workforce was predominantly male and industrial. Crucial for the housing market are interest rates.
Despite the positive signs on inflation, Bank of England governor Andrew Bailey, along with his counterparts Jay Powell at the Fed and the ECB’s Christine Lagarde, remain cautious. They were too slow to react to quell inflation in the first place and now may be erring in the opposite direction.
The mini-Budget provided a feast day for the gloom-merchants. Whatever one’s views on the ill-fated Truss-Kwarteng experiment, stability was restored and a crisis on the pensions market was averted by the Bank of England. In other words, the system worked.
In the midst of the turmoil, some of our flagship firms are continuing to create jobs, win big contracts and boost exports. BAE Systems has this year signed a ground-breaking deal with Italy and Japan for a new fighter jet, which could win export orders in Asia.
Reforms to City rules will free up big investors to put billions into infrastructure and the idea that the London Stock Exchange is being eclipsed by Paris is for the birds.
Britain faces formidable problems, but let’s not forget we possess formidable assets. Happy Christmas.