Jes Staley, chief executive of Barclays, thinks the UK economy is going to boom for the remainder of this year, with the strongest rate of growth since 1948. In itself, Great stuff if it does, but with the economy still around 8pc smaller than its pre-pandemic state, it is actually only what would be required to meet Andrew Baileys suggestion that all the ground lost to the pandemic might be clawed back by the end of the year.
The Bank of England Governor made that prediction back in February. The outlook has further improved since then.
Yet the bigger question is not how long it takes to repair the Covid-related damage; rather it is what happens thereafter. Does the economy simply return to lacklustre, pre-pandemic levels of growth, or does it continue to motor, causing things to overheat, and a consequent surge in price and wage inflation?
I imagine the Bank of England will be increasing its forecasts for the economy in its May Monetary Policy Committee report, due to be published this week. Already it is obvious that the previous assumption of a 4pc hit to the economy in the first quarter is way too high.
At most, its going to be half that. The success of the vaccine programme, allowing all economic restrictions other than perhaps those on international travel to be lifted by the end of June, gives a high degree of confidence that Baileys more upbeat view is going to be met. But although base effects make it pretty much certain that inflation will return to the Banks 2pc target over the months ahead, the great bulk of decision makers on the Banks Monetary Policy Committee continues to see any sustained surge in inflation and growth as rather unlikely.
Its not just return to trend conformity, or long Covid effects, that make them dovish. The Bank also continues to take a particularly gloomy view of the impact of Brexit, which it thinks will be a drag on growth for years to come. Thats been the prevailing orthodoxy among economists for a long time now, and there is as yet not much evidence of it being disproved. Fact; Brexit has made it considerably harder and more expensive to trade with Europe.
The modelling used may prove flawed, but for what it is worth, the Bank reckons that the new trading arrangements with Europe will reduce GDP by 3.25pc over the long run relative to where it would otherwise have been, around two thirds of which will be felt by the end of 2024. If correct, thats quite a dampener on any notion of the roaring twenties.
To me, however, the Bank is being both too gloomy about prospects for growth, and therefore too complacent about emerging inflationary pressures. Ignore the warning signs for too long, and it would require sudden, handbrake action by the Bank to correct the problem.
Any abrupt change in policy might tip the economy into recession, given still very high levels of public and private debt. Thats the historic pattern of recessionary periods. Expansions dont die of old age, goes the old saying; they are murdered by central bank policy action.
