The new Grimsey Report says indie retailers face a "mountain of debt" after taking on Covid support loans during the pandemic"
Geoff Riley's insight:
The UK's small shopkeepers collectively are struggling under a £1.7 billion mountain of debt according to a new report. Many resorted to taking out emergency government-backed loans during the first wave of the pandemic and they are now vulnerable to uncertain revenue streams as lockdown restrictions are eased along with the threat of rising interest costs and debts coming up for repayment.
The Grimsey Report reviewed the published accounts of every UK independent business across the retail, services and hospitality sectors with total assets of £250,000 or less.
Is there a case for some form of debt forgiveness for smaller retailers? Grimsey calls on the British government to write off loans, potentially using about £2bn in funds returned to state coffers by large retailers
Opponents would argue that forgiving debt risks creating moral hazard and that debt write-offs would place yet another burden on tax payers.
If Scotland were to become independent from the rest of the UK, it would need to decide what currency to use. Options include sticking with sterling, creating a new national currency or joining a monetary union, such as the eurozone.
Geoff Riley's insight:
The choice of currency regime matters - and this new piece from the Economics Observatory makes for fascinating reading.
Whilst a second Scottish independence referendum in the near future looks unlikely. The pressure for another vote is growing and with it comes detailed scrutiny of the architecture of macroeconomic policy making for a future independent Scottish government.
Would Scotland choose to join the Euro Zone? Might it take a leap and introduce their own currency? Or would they favour - perhaps as an interim approach - continuing to use sterling.
These are not easy decisions to understand. But, as the article makes clear, Scotland's relatively weak fiscal and current account position will likely limit their options and constrain the freedom to follow an independent monetary and fiscal policy.
This is a good article to recommend for enrichment reading for Year 13 economists when they study exchange rate (currency) systems ad the costs and benefits of monetary union.
A shortage of the gas could hit meat production and packaging, UK processors warn.
Geoff Riley's insight:
The supply-chain crisis affecting the UK economy seems to be deepening. Sharp increases in world natural gas prices are said to have led to the temporary closure of some fertiliser plants the output of which creates carbon dioxide used in the meat production and packing industry, The threat is that this could seriously impede the meat supply chain in the UK within a matter of days. Indeed the UK's CO2 supply is said to have been cut by almost 60% and it remains vital to a number of industries. The government claims that “Britain has a diverse range of gas supply sources, with sufficient capacity to more than meet demand.” These words may ring hollow in the days to come with potentially serious economic consequences.
Commercial carbon dioxide is recovered from electric power & fertilizer plants which produce hydrogen or ammonia from natural gas.
Climate change is one of the most pressing issues of our time. The challenge for policymakers is that climate policies could have a negative impact on the economy in the short term.
Geoff Riley's insight:
Should a carbon tax vary according to the stage of the economic cycle helping to mitigate some of the risks of emissions reductions on jobs and real incomes during tough economic times? This is the main argument of research presented in this VoxEU paper. Economists Ghassane Benmir, Ivan Jaccard and Gauthier Vermandel make the case that the optimal carbon tax should vary substantially over the economic cycle. It is the sort of argument that would classify as excellent evaluation when discussing some of the potential trade-offs between policies - in this case, between environmental policies and their short-term macroeconomic impact.
Sterling hit €1.1833 against the single currency, its highest level since February 2020
Geoff Riley's insight:
The pound is appreciating against the Euro in part because economic confidence in Europe's largest economy Germany is weakening. But also because of expectations that the Bank of England will start raising interest rates this autumn as inflation increases. What impact might a stronger pound have on the uK economy?
The effects of Brexit, Covid and tax changes have led to competition for workers between UK supermarkets
Geoff Riley's insight:
Every little helps! Tesco's £1,000 signing on bonus for HGC drivers is in a sense, the natural market response to the chronic shortage of qualified drivers that is threatening to impede economic recovery from the pandemic. The shortage of drivers is a long term problem exacerbated by short term issues including the loss of thousands of non-UK drivers due to Brexit, the postponement of over 30,000 HGV licence exams during lockdown, allied to the more recent impact of the "pingdemic" with thousands of drivers having to self isolate. No doubt Tesco and other large-scale companies such as Amazon, DPD, Hermes and the major supermarkets, have the financial resources to bid up pay and offer bonuses. Small-scale haulage companies operating in an industry with low profit margins, have much less scope to do likewise and they fear losing some of their own drivers to businesses ramping up pay. The shortage of drivers - it takes up to six months to fully train them - shows the important linkages between the labour market and the wider macroeconomy. What government policy interventions might be effective in addressing the shortage of HGC drivers? Why do we all pay the price when a chronic excess demand for drivers is allowed to persist?
Some 700 workers are sent home from its Sunderland plant after being alerted by the NHS app.
Geoff Riley's insight:
As the 3rd wave of the coronavirus pandemic sweeps through the UK, the need for close contacts rot self-isolate is becoming a significant economic issue. Ten per cent of the labour force at Nissan's giant plant in Sunderland are self-isolating at the moment leading to cutbacks in production. Similar issues are affecting thousands of shops and hospitality venues especially those with a younger workforce many of whom are not yet fully vaccinated. Consider the impact of this on the UK economy's short run aggregate supply.
According to new data from the Resolution Foundation, the UK is experiencing the first mid-recession wealth boom since the 1940s.
Total household savings are £200bn higher than they were pre-crisis, household debts (excluding credit cards) have fallen by around £10bn, and house prices – which have fallen by an average of 22 per cent over the previous four recessions – have risen by 8 per cent since February 2020.
However, as one might expect, the surge in financial wealth among millions of UK households is marked by growing inequality. The gap between the average and the wealthiest 10 per cent of households has increased by £44,000 during the crisis (following a £350,000 increase between 2006-08 and 2016-18), while the gap between the average and the poorest tenth of households has also grown by £7,000 during the crisis (a bigger increase than seen during the whole 2006-08 and 2016-18 decade).
The poorest households have been most exposed to reductions in employment from recession-induced lay-offs and contractions in income despite the furlough scheme. They have lower savings in absolute terms and are thus exposed to high interest rate unsecured loans when unexpected bills arrive. In addition, home-ownership among households in the lower deciles of the income distribution are significantly lower. The majority must rent and housing rents have surged due to a lack of affordable properties.
The data provides some useful context as the government makes a final decision over whether to end the temporary £20 a week increase in universal credit.
The majority of workers in Iceland now look set to move to shorter hours for the same pay.
Geoff Riley's insight:
Here is a really good story to link to your study of labour market economics.
A four-year study involving 2,500 people - or 1% of Iceland's workforce has found that switching from the standard 40 hour working week to a 35 or 36 hour working week with workers still getting the same pay, has not had a negative impact on productivity. Indeed in some cases, it has improved the measured efficiency of those employed whilst creating the positive spill-overs associated with a better work-life balance.
A number of countries are experimenting with reducing the length of the working week and numerous companies are recalibrating both the hours expected from full-time employees together with the split between working from home (WFH) and being based in the office. it is another aspect of our post-pandemic economy that will be well worth keeping an eye on.
Industry warns people to delay home improvement due to shortage of cement, electric components, timber and steel.
Geoff Riley's insight:
This is a terrific example of factors that can cause an inward shift in short run aggregate supply (SRAS). Production hold-ups in Scandinavia impacting on timber supplies and drops in chemicals and plastics production in Texas, allied to the rising cost of shipping raw materials around the globe are contributing to a steep rise in world prices for essential inputs into the construction industry. As the world economy picks up after the worst of the pandemic, demand for construction projects is climbing and so too is the derived demand for the component parts needed. This is one factor behind fears that supply-chain inflation might feed through into a more broadly-based increase in consumer prices at retail level. Central banks are on the alert in case policy interest rates need to start rising again or quantitative easing might be tapered.
The IFS provide their latest estimates of changes in relative poverty in the UK. A good article to read to understand the significance of median income.
The U.K. saw substantial currency depreciation during the financial crisis, after the Brexit vote and amid its current political uncertainty. But the predicted economic boom hasn’t arrived, providing a live test of whether globalization has blunted textbook theory.
Geoff Riley's insight:
This article is superbly relevant for any exam question that asks students to evaluate the economic impact of a currency depreciation. The rising level of import content in many manufactured products means that a significant depreciation in a currency often no longer has the expansionary effects on exports, domestic output, profits and jobs that textbooks once supposed.
The pandemic is not over and the next 12 months pose geopolitical and systemic challenges
Geoff Riley's insight:
Nouriel Roubuini, aka Dr Doom serves up a litany of downside economic and geo-political risks for the world economy as we tip toe hesitantly into 2022. Some of them are well understood such as the threats from the excessive reliance on cheap credit that consumers and businesses in many advanced countries have come to rely on pretty much since the Global Financial Crisis. How far will central banks go in normalising monetary policy by reversing QE and raising policy interest rates to combat inflationary pressures? We heard a lot of the term "transitory inflation" during 2021. Will actual and expected inflation become more permanent in the year ahead? Roubini is an acknowledge expert on the causes and consequences of financial crises, so this opinion piece from the Guardian is well worth a look.
Tata Steel UK hit by pandemic-fuelled slump in demand but managed to reduce yearly losses
Geoff Riley's insight:
There are so many micro and macro aspects to this news story about continued heavy losses at the UK operation of Indian conglomerate Tata Steels. Operating losses are a shade under £1 million per day which seems big enough except that this represents an improvement on the previous year when losses exceeded £600 million. The pandemic-induced collapse in investment spending caused a steep fall in the derived demand for steel in a sector already experiencing excess capacity. Steel demand is picking up but Tata is now facing up to higher costs that are Brexit-related including import tariffs on some raw materials, increased logistics costs - few industries these days seem immune from the chronic shortage of qualified HGV drivers. And as an interesting side issue, Tata Steel has had to borrow money to help fund the purchase of carbon credits since the steel industry remains - for the moment - part of the EU carbon emissions trading scheme.
The stamp duty holiday did not cause rising house prices, the Resolution Foundation think tank says.
Geoff Riley's insight:
Are soaring property prices - over time - good news for the UK economy? The arguments for and against double-digit annual growth in property valuations will continue to rage and this can make for an interesting early micro/macro classroom discussion to promote skills of analysis and evaluation. UK average house prices reached a record high of £266,000 in June 2021, which is £31,000 higher than at the same time in 2020. Average house prices increased over the year in England to £284,000), in Wales to £195,000, in Scotland to £174,000 and in Northern Ireland to £153,000. Has the Stamp Duty holiday merely added fuel to the fire given the other demand-side factors driving property prices ever higher?
It has long been recognised that innovation is unevenly distributed, but whether such technical progress may be the root cause of the rising income and wealth inequality in the US has been a matter of intense debate. This column studies the diffusion of 29 disruptive technologies across firms and labour markets in the US. It finds the locations where such technologies arise
Geoff Riley's insight:
This new paper from Bloom et al from Stanford provides an overview of how original pioneer locations of disruptive technologies such as AI and broadband retain their initial advantages over many years running into decades. One possibility is that the original pioneers become major employers and attract even more highly skilled workers to where new jobs linked to these innovations are being created. Another is that established firms based elsewhere move jobs to the innovation hubs. And clusters of disruptive businesses provide a fertile environment for start-ups many of which are founded by former employees of established and dominant businesses,
Bad housing and deprivation are a toxic mix for health, says England's chief medical officer.
Geoff Riley's insight:
The economic and social deprivation suffered by many in many of the UK's coastal towns is highlighted in a new report from from England's chief medical officer, Professor Chris Whitty.
Most coastal towns have ‘hidden problems’ and a big wealth and income divide. Their populations tend to be older, per capita incomes are lower and economic inactivity rates are higher. This feeds through to worse outcomes for public health, a problem accentuated by the lack of public health facilities including access to NHS dentists. Whitty argues that many residents are left "old before their time."
These problems have been apparent for decades and will require major investment from both public and private sector to address in a fundamental way. Coastal economic decline is a really important aspect of the regional economic problem for the UK.
Here are some key findings from the report:
Ageing population - In smaller seaside towns, 31% of the resident population was aged 65 years or over in 2019, compared to just 22% in smaller non-coastal towns.
Reduced access to high quality health care - coastal communities have 14.6% fewer postgraduate medical trainees, 15% fewer consultants and 7.4% fewer nurses per patient than the national average despite higher healthcare needs.
Unemployment and part-time employment rate is higher in coastal towns and the level of economic diversification is lower.
The new Grimsey Report says indie retailers face a "mountain of debt" after taking on Covid support loans during the pandemic"
Geoff Riley's insight:
The UK's small shopkeepers collectively are struggling under a £1.7 billion mountain of debt according to a new report. Many resorted to taking out emergency government-backed loans during the first wave of the pandemic and they are now vulnerable to uncertain revenue streams as lockdown restrictions are eased along with the threat of rising interest costs and debts coming up for repayment.
The Grimsey Report reviewed the published accounts of every UK independent business across the retail, services and hospitality sectors with total assets of £250,000 or less.
Is there a case for some form of debt forgiveness for smaller retailers? Grimsey calls on the British government to write off loans, potentially using about £2bn in funds returned to state coffers by large retailers
Opponents would argue that forgiving debt risks creating moral hazard and that debt write-offs would place yet another burden on tax payers.
The Port of Blyth boasts a world-class research hub for offshore renewable energy. Cambois, just a few miles north, is the landing point for a sub-sea electricity cable from Norway, and the proposed site of an electric car battery factory. The FT's Leslie Hook visits these projects as the UK prepares to host the COP26 climate talks
Geoff Riley's insight:
This is a superb video from the FT looking at how the clean energy revolution is changing the landscape of the north-east coastal town of Blyth. The area has suffered grievously from the loss of thousands of jobs directly and indirectly linked to coal-mining. Economic inactivity rates remain high and per capita incomes remain well below the regional and UK average. But this video provides an optimistic picture of how new investment in clean renewable energy offers hope of a structural transformation for Blyth. There is so much economics in this video - from the fast-changing nature of energy economics, to regional multiplier effects from investment and the extent to which capital intensive building projects create enough new jobs to replace those lost from previous decades.
The move has received a mixed response from industrry bodies
Geoff Riley's insight:
The estimated shortage of 100,000 HGV drivers would make for a superb introductory economics lesson. What is causing the shortage of lorry drivers? What are the likely effects on the economy (including the reality of higher distribution costs and the risks of shortages of key components, foodstuffs and other supplies). And, perhaps of more significance, what can be done to overcome this labour shortage.
The government's short-term response - akin to papering over the cracks - is to allow a temporary relaxation of the rules governing how many hours per day an HGV driver can work. Savvy students will see the flaws in such an approach. Firstly, the risks of increased driver fatigue and the risks of accidents on our busy roads. Second, the likelihood that longer hours will make HGV driving even less attractive to potential new entrants and make the labour shortage even more severe.
Standard economic theory suggests that road haulage firms will have to bid up wages and improve other aspects of working conditions to expand the supply of available drivers and indeed, there are signs that this is happening. The industry is in talks with the government to agree a temporary rise in the quota of migrant lorry drivers from overseas although whether this is sufficient to overcome the two fundamental causes of the shortage - namely Brexit and the pandemic - remains to be seen.
The lorry driver shortage has real consequences - it is leaving gaps on Sainsbury's shelves and German confectionery giant Haribo has said it is struggling to deliver its sweets to shops in the UK. Maybe this latter crisis might be enough for people to take up arms and apply forthwith for their HGV training licence!
One reason why Boris Johnson and his Government want a quick return to “normality”, as announced today, is to dispense with the uncertainty that has blighted our lives — and the economy — over the last year or so. If vaccines work sufficiently well to prevent mass hospitalisations and, thus, protect both ourselves and the National Health Service, the Government believes we will be able to return to the way we were before Wuhan first hit the headlines in January last year.
Geoff Riley's insight:
Stephen King argues in this short comment piece that economic uncertainties remain pervasive.
He writes that "the pandemic has reshaped economic and social conditions in ways that have only added to uncertainty.."
How temporary will be the surge in inflation being seen in the USA and expected in the UK? What might be some of the consequences of the large outflow of migrant labour from the UK which by some estimates has exceeded over a million workers over the last fifteen months? Add this to the deep uncertainties over future mutations of the covid virus and the extent to which booster jabs will be needed to keep the NHS from being over-loaded in the autumn and winter that lies ahead.
An understanding of the importance of economic uncertainty is crucial to the building blocks of macroeconomics covered in Years 12 and 13 of A Level and IB courses. It makes macro policy-making difficult and naturally impacts on the output, investment and hiring decisions of businesses.
Britain may be able to create 175,000 new manufacturing jobs and generate an extra £455bn if the UK takes full advantage of a “fourth industrial revolution”, based on robotics, artificial intelligence and other cutting-edge technologies.
Geoff Riley's insight:
An important report for students to enrich their understanding of key drivers of competitiveness in emerging industries.
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