One reason why Boris Johnson and his Government want a quick return to “normality”, as announced today, is to dispense with the uncertainty that has blighted our lives — and the economy — over the last year or so. If vaccines work sufficiently well to prevent mass hospitalisations and, thus, protect both ourselves and the National Health Service, the Government believes we will be able to return to the way we were before Wuhan first hit the headlines in January last year.
True, Covid will still be circulating and some of us will be unlucky enough to catch it, but we might finally be able to wave goodbye to track and trace, compulsory face masks, mandatory quarantines and the restrictions on gatherings that have so limited our economic and social freedoms.
Uncertainty, however, is a very odd thing. Donald Rumsfeld, the rumbustious former US defence secretary who died last week, was much mocked for his famous remarks on the issue but, from a policymaker’s perspective, he was absolutely right. There are indeed “known knowns, known unknowns and unknown unknowns”. The Government hopes that the vaccine programme will be associated with a series of “known knowns” — fewer people than before will catch Covid, fewer still will end up in hospital, hardly any will die and businesses will reopen, welcoming workers and customers back with open arms.
Even here, however, there are plenty of “known unknowns”. Will new mutations appear? If they do, will the current vaccines continue to be effective? Will the promised “boosters” do the trick from September onwards or will we succumb to another winter Covid “storm”. And can our lives really return to normal when so much has changed since the virus first began to circulate?
While the Government is in control of our internal unlocking, it only has influence on, not control of, our external unlocking. British citizens may wish to head abroad — for either business or pleasure — but there is no guarantee that “abroad” will let us in.
Only last week, Hong Kong banned flights from the UK, regarding us as “extremely high-risk” thanks in large part to our freely circulating Delta variant. Fifty per cent of Britons have now received two vaccinations but only 20 per cent of Hong Kong citizens have likewise benefited. The numbers for Australia and New Zealand are even lower. You can see why caution prevails in other parts of the world.
As for economic “known unknowns”, inflation has become rather problematic. Despite the loss of activity and demand associated with Covid lockdowns, price pressures are increasing. Already, the Bank of England is having a semi-public bust-up on the matter.
Andy Haldane, the departing chief economist, warned last week that the Bank might have to carry out the monetary equivalent of a “handbrake turn”. Andrew Bailey, the Governor, argued in his Mansion House speech the next day that any increase in inflation was temporary and, by implication, wouldn’t need an abrupt policy change.
This isn’t going to be resolved any time soon. Yes, some of the increase in inflation is doubtless temporary. Container ships will eventually get to the right ports, semiconductor production will rise and, once holidaymakers can travel freely to Majorca, accommodation prices in Cornwall won’t remain absurdly high.
But part of the recent inflationary increase may prove more problematic. The world is awash with money and, thanks to both Covid and Brexit, British companies can no longer rely on a steady supply of cheap foreign workers to keep a lid on wages.
Meanwhile, an increased desire to “buy British” — or, as Labour’s shadow chancellor Rachel Reeves put it over the weekend, to “buy, make and sell British” — will only add to price pressures. By contributing to globalisation’s reversal, such economic nationalism will likely mean an increase in costs relative to the experience of the past three decades, a period during which inflation was persistently lower than anyone expected.
So celebrate the UK’s grand “reopening” but don’t kid yourselves that we’re returning to life as it used to be. The pandemic has reshaped economic and social conditions in ways that have only added to uncertainty. As for unknown unknowns, don’t get me started. They are, by definition, unknown. Or, as Rumsfeld might have said — disingenuously or otherwise — “stuff happens”.
Stephen King is HSBC’s senior economic adviser and author of Grave New World (Yale)
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