Reader TTS

Whether it’s NHS strikes, trains going nowhere or inflation leading to a cost-of-living crisis the likes of which we’ve not endured for decades, it’s hard to be anything other than

depressed. There was, thankfully, some respite on Monday, when the Boxing Day sales proved more popular than expected – according to some estimates up around 50 percent on an Omicronblighted

last year, yet still 30 percent or so down on 2019. So far this year, retail spending is down 4.5 percent. We need consumer spending to help with growth – and retailers need cash to make up

for a terrible time since the pandemic. It’s easy to turn to history and look at the 1970s and 80s, the last time we had anything resembling this disastrous mix of inflation, strikes and

dire economic news, and conclude we are only at the start of the mess. One thing we do know from history is that only a fool makes firm predictions in an unstable economic world. This time

last year, even the few people with their eyes on what was happening on the Russia/Ukraine border did not predict a full-scale invasion. And it was, of course, Putin’s criminal assault on

Ukraine that sent energy costs spiralling – in a market already chaotic after the pandemic. So yes, another year at least of gloom and doom might well be our fate. But there are, however,

strong grounds for believing that 2022 may mark the worst of it, and that the outlook for 2023 is very much better. Take inflation. It seems almost a bad joke that the Bank of England’s

inflation target is 2 percent. In October the rate was 11.1 percent, and it’s now 10.7 percent. But the so-called “core” rate – which does not include food, energy, tobacco or alcohol – is

6.5 percent. The real problem is that even after the Government’s energy price guarantee, electricity, gas and other fuel prices rose by an astonishing 24.3 percent between September and

October. But the other side of this coin is that, with inflation having soared on the back of energy price rises, a probable fall in energy costs next year should have a beneficial impact on

inflation. The World Bank predicts a fall of at least 11 percent in energy costs and says that could be much bigger if demand is low because of slow global growth, and if China continues

with Covid restrictions. Add to that the impact of this year’s price increases no longer pushing the rate up and there is every reason to hope inflation will be on a serious downward

trajectory. That will also have a beneficial impact on interest rates. One of the main drivers behind the Bank of England’s current series of rate rises has been its earlier failure to

anticipate inflation rising, and the subsequent need to use interest rates to try to squeeze inflation. If inflation is falling and interest rates no longer rising, that should boost

consumer spending, which is the key to growth. One very different aspect of our current mess is unemployment. Normally you would expect the jobless to start climbing when inflation rises and

spending falls. But it hasn’t moved above 3.7 percent this time. That’s partly because of what seems to be side effect of the pandemic. Some 630,000 people have voluntarily stopped working

since 2019. Overall, there are a record nearly nine million economically inactive adults, with many of these effectively choosing to live on benefits. In other words, unemployment is

negligible because there are far fewer people looking for work. This acts as a brake on growth, as businesses struggle to recruit. Reports suggest the Government is to focus on expanding the

workforce next year. But there is one other potential piece of good news which dwarfs everything else. If Russia’s invasion was the cause of so much that has dogged us, its defeat would not

only act as a catalyst for growth – it would change so much else. A part from the purely economic measures, there has been an almost existential doom about the West for so long, as if we

are fated to lose to authoritarian regimes such as Russia and China. The latter is now is an appalling mess thanks to its severe Covid restrictions. But if – it remains a big if, despite

Ukraine’s brilliant progress to date – Russia’s defeat becomes plain, it will be an injection of adrenalin into Western life, including the economy. This year has been horrible. I hope you

don’t think I am being too Panglossian in explaining why next year may well be very different.