Freedom Day is approaching – and among the first to throw off their shackles will be economic policymakers, who have been operating in a state of suspended animation for the past 18 months.
Their freedom may mean yet more restrictions for other economic participants. Once it becomes apparent that the lifting of furlough and other government interventions will not magically result in everything returning to the “old” normal, some hard-nosed decisions will have to be made by lenders and borrowers alike.
The looming and uncertain impact of inflation (something that no-one under the age of forty has any experience of) is unlikely to be accompanied by higher interest rates in the short term. However, business folk will see the writing on the wall and take a dim view of what commercial entities are likely to be sustainable in the new world. This may not have such a detrimental impact on unemployment as was once feared – the exodus of EU nationals, many employed in the hospitality/part time economy will open up opportunities for less skilled UK nationals.
Nonetheless, the inescapable shift in consumer behaviour over the last year and a half will come into sharp focus after next week. In the retail sector – already embattled before Covid – the ease, efficiency and price advantage of online shopping has been reinforced by long periods of lockdown. Working from home and hybrid models will undoubtedly hit businesses serving large volumes of office workers.
Watch also for sectors that will be unexpectedly badly hit as the new norm appears – higher education , for example, where it is possible that a score or more institutions will be forced to merger or go into administration. The same goes for the professional services sector, where we could see less well run, small/mid-sized law and accountancy firms going under.
The economy’s recovery to pre-pandemic levels will be a foggy road. Figures for both inflation and unemployment will be hard to interpret and not necessarily instructive while a long tail of workers displaced from sectors undergoing change are absorbed into other, or even completely new, areas of employment.
We will all enjoy our relative ‘freedom’ in what remains of a summer that is far from normal. However, now is the time for businesses – not just lenders – to make considered yet tough decisions, and possibly get expert help, in preparation for an autumn without government support.