What's Happening in the World of Personal Finance?
Outlook November 2021
It seems like a long time since March 2020 and COVID19 made its mark on the UK. Vaccines and a wide range of treatments have since been developed to combat the worst effects of this pandemic. We are now better equipped to meet the challenges of this coming winter, although the NHS resources are already stretched.
The 2020 UK recession, lead to the largest annual GDP decline on record, with Government and Bank providing the funding to support people and industry through these most difficult of times. In Spring 2021 it appeared that some temporary blip in the goods supply chain would increase inflation above the 2% target rate for a short time. However, this dislocation between the production, transportation and delivery of goods now means that this blip could be both greater and longer than expected. The scarcity of adequate (fossil fuel) energy for both industry and domestic consumption exacerbates the problem.
Some developed countries will probably look to taper the levels of quantitative easing soon, with interest rate rises to follow, perhaps later (Q2 onwards) in 2022. This is a delicate balance – to damp down inflation prospects without damaging economic growth potential.
Here in the UK the government are already looking at ways in which to rebuild finances – either by new measures to increase tax take, or simply freezing some benefits, which over time erodes their value in real terms.
In Europe some consideration is being given to the two forms of QE being deployed and perhaps tapering one of them. Inflation is less than in the UK but the level of youth unemployment is higher. The replacement of the German Chancellor, Angela Merkel, is problematic from both status and (EU) stability perspectives.
In USA, the market is running rather hot, having been close to all-time highs, and needs some gentle cooling down – perhaps through signalling by the Fed, and possibly by the tapering of quantitative easing. Joe Biden is looking to restore links to major nations and global organisations – although the timing and manner of the withdrawal of troops from Afghanistan has dented his credibility.
China was the only major economy to have positive growth in 2020 (2.3%), with growth for 2021 and 2022 being forecast as 8.1% and 5.7% respectively.
International Monetary Fund (IMF) forecasts for 2021 and 2022 are 5.9% and 4.9% respectively. Clearly this major recession is a global phenomenon as is the virus. Economic activity, essential as it is for our future survival, should not be at the expense of giving proper regard to the health and welfare of every person on this planet. As the vaccine becomes more widely available to all through the COVAX program, the wealthy nations must continue to have due regard to the needs of the poorer countries, remembering the WHO tag that “no-one is protected until all are protected”.
It will be instructive to see how the outcome of COP26 lays expectations on countries to fund and implement policies which they sign up to.