IEA economist responds to latest ONS GDP data
Kristian Niemietz writes for CapX
Annabel Denham referenced in City AM
“The better than expected GDP data show that overall activity in the UK economy was finally back above its pre-Covid level in November. This milestone has been reached much sooner than most had anticipated at the start of 2021, even though lost growth means that activity is still below where it would have been without the pandemic.
“It is obviously too soon to sound the all clear. The recovery likely faltered in December and January, due to Omicron, so there is a risk that GDP will dip briefly below its pre-Covid level again. Rising energy bills and tax hikes will add to the headwinds in 2022.
“Nonetheless, there should be some powerful tailwinds too, including the strong jobs market, a further easing of Brexit uncertainty, a rebound in business investment, and the fading threat from Covid. The recent evidence from business and consumer surveys is generally reassuring.
“The UK economy is therefore likely to perform better than most expect in 2022 as well, without the need for further state intervention.
“The government may have to do a little more to help low income households over the next few months, particularly with energy bills. But the focus should be on rolling back measures that are no longer necessary and often increasingly counter-productive, including Covid restrictions, clumsy interventions in the energy market, and restrictions on housebuilding.
“Any additional support should be targeted at those that need it most, and work with markets rather than against them. Stronger economic growth, not tax rises, is the best way to repair the public finances.
“The Bank of England should also be bolder in tackling the underlying drivers of inflation, which is caused by too much cheap money chasing too few goods and services. This means returning interest rates towards more sustainable levels sooner rather than later, and starting to withdraw some of the emergency stimulus from quantitative easing.”
Notes to editors
Contact: Emily Carver, Head of Media, 07715 942 731
IEA spokespeople are available for interview and further comment.