The news comes not long after the Federal Reserve upped interest rates by three-quarters of a percentage point to a range of 2.25%-2.50% in a bid to curb growth and ease price pressures.

Despite the report, Federal Reserve Chair Jerome Powell thus far maintains the view that an economy that is adding hundreds of thousands of jobs per month is not experiencing a recession. Over the past months, Powell has vowed to take action against record-high inflation. 

"We do want to see demand running below potential for a sustained period to create slack and give inflation a chance to come down," Powell commented on Wednesday. 

"It's also worth noting that these rate hikes have been large and they've come quickly, and it’s likely that their full effect has not been felt by the economy. So there’s probably some additional tightening - significant additional tightening in the pipeline."

[ymal]

In June, Federal Reserve officials highlighted the need to tackle inflation, even if it came at the cost of slowing the economy amid the looming threat of recession. They said that the US central bank’s July meeting would likely see another 50 or 75 basis point move on top of a 75 basis point increase that was approved in June. 

“In discussing potential policy actions at upcoming meetings, participants continued to anticipate that ongoing increases in the target range for the federal funds rate would be appropriate to achieve the Committee's objectives,” the minutes read.

“In particular, participants judged that an increase of 50 or 75 basis points would likely be appropriate at the next meeting. Participants concurred that the economic outlook warranted moving to a restrictive stance of policy, and they recognised the possibility that an even more restrictive stance could be appropriate if elevated inflation pressures were to persist.”

[ymal]

The recent Ukraine war has been the touchpaper for a multi-national cost of living crisis that had in fact been some time in the making. COVID-19, commodity prices and the environmental imperative, to name but three factors, have coincided to push prices of goods and services across the board to all-time highs. The result has been a surge in inflation, with the UK alone now hitting 9% in April.

Just as it was with the pandemic, the question on everyone’s lips is ‘when will this be over?’. Key institutions are scrambling to respond, and governments are introducing short-term, palliative measures in the hope of staving off recession. But the true answer may be that increased prices are here for good. It may be that the world needs to adjust to new realities in the way we buy and live. But what are the key costs causing this crisis for consumers, and how are they likely to change over time?

Energy

The first major culprit in the cost of living crisis is energy. This increase was underway well before the recent war, as wholesale prices had steadily risen in response to increased global demand, and the push towards greener but more expensive energy production.

These factors are here to stay, and while we may see a stabilising over the next two-three years, a return to previous levels is highly unlikely – and that means a new and more challenging ‘normal’ for consumers. This gloomy prognosis is even more likely for Europeans, now deprived of Russian energy sources that will continue to be shut off or severely curtailed for the foreseeable future.

Food

Next comes food. Myriad factors are driving up shopping basket prices, but at the highest level, changing weather patterns around the world are responsible for significant disruption in the way the world farms and produces. Critical foodstuffs have been massively affected by atypical weather events over the past few years. Supply chain disruption caused by COVID-19 is another major contributor, with factories and logistics facilities having to limit and re-configure labour usage to limit the spread of infection. Finally, the drive towards sustainability has seen great increases in production costs, as the world increasingly demands that food is produced in a greener way and under improved labour and animal welfare conditions.

All of these are long-term factors - adjusting to changing weather patterns, for example, could take the world decades to solve, and environmental concerns are unquestionably here to stay. Again, prices may stabilise in the medium term, but a return to previous levels is almost out of the question.

Interest rates

Many central banks, including in the UK and the US, are raising interest rates in an attempt to combat inflation. But while those with savings may benefit, the result is also a significant increase in the cost of consumer borrowing. Mortgage rates are going up, as is the cost of credit at just the time when consumers are having to rely on it more than ever.

These actions could potentially be reversed in the medium term. If inflation can be stabilised, governments might in 2-3 years be in a position to reduce rates once more – but that ray of hope is dependent on a host of other factors in the wider economy.

The value of financial understanding

It seems almost certain that a higher cost of living is here to stay. But that doesn’t mean there’s nothing we can do about it.

W1TTY is a young finance brand with a growing customer base amongst students and young people. As quickly as we’re taking off, we’re also acutely aware of what our customers are facing in managing their finances as the cost of living crisis continues.

In-depth educational services are needed right now to help young people deal with these issues. With so many facing a tougher challenge in balancing their budgets, it’s never been more important that they’re equipped with the understanding, know-how and responsible signposting that will help them to make prudent decisions about their money.

Young people deserve to have bright financial futures. Through a combination of loyalty and reward schemes, gamified learning and personalised features, W1TTY is about empowering our customers with accessible, engaging education and saving incentives. By doing so, it’s our aim that we can help insulate them from some of the worst impacts of the current crisis.

About the author: Ammar Kutait is the CEO and Founder of W1TTY.

[ymal]

Key to my approach to markets is that they require political stability to thrive – hence the most remunerative markets tend to be found within the most stable nations. They tend to have robust and enforceable legal systems, solid financial infrastructure and a culture enabling transactions and risk-taking. That’s the key to understanding the fundamental strength of the City of London – centuries of stability.

All around the world, we are now seeing a rise in instabilities – triggered by supply chain breakdowns, the supply shocks in Energy and Food, and now wage demands. Nations are struggling with inflation, rising interest rates, higher debt service costs on borrowing, rising bond yields, currency weakness, and how to address multiple vectors of financial instability as they try to hold their financial sovereignty together.

It’s occurring at a time when we seem to have reached the lowest common denominator in the political cycle. That’s a critical problem – voters need leadership in crisis, and they can easily be fooled by populists.

Confidence in a nation’s political direction and leadership is one of the key components of the Virtuous Sovereign Trinity, my simple way of explaining how Confidence in a country, the value of its Currency, and the Stability of its bond market are closely linked. When they are strong – they can be very strong. Strong economies rise to the top.

But, if any one of the Trinity’s legs were to fracture, then the whole edifice could come tumbling down. Which is why we should be concerned sterling is down over 10% this year. It strongly suggests global investors have issues with the UK.

Key to my approach to markets is that they require political stability to thrive – hence the most remunerative markets tend to be found within the most stable nations.

The UK is a good example of what might go wrong. If confidence wobbles in the government’s ability to handle the multiple economic crises now upon us, particularly the rising tide of industrial unrest as workers demand higher salaries to cope with inflation or servicing the nation’s debt, then the UK’s currency and bond markets could come under massive pressure. Investors will demand a higher interest rate to account for the increasing risk inherent from investing in the UK, while the currency could tumble as investors sell gilts to buy less vulnerable more stable nations.

At least the UK is financially sovereign. We control our own currency. Sterling may weaken, but we can always print more to repay debt… Except that would probably cause a global run on sterling as confidence in the UK would further tumble. If the currency leg were to fracture, interest rates would have to rise, wobbling confidence further.

The Virtuous Sovereign Trinity sounds stable, but experience shows it can quickly turn chaotic if issues are not swiftly addressed.

Clearly, the UK has some current confidence “issues” regarding the incumbent political leadership. The growing perception that Boris is a “lame duck” magnifies internationally held concerns about how his government has failed to seize the opportunities (such as they were) from Brexit, doubts about energy and food security, and the apparent dither in policies are all perceived as reasons for sterling weakness and are another reason bond yields are rising as global investors exit.

While the UK’s debt quantum should be manageable – Italy is somewhat different. As part of the Euro, Italy is no longer financially sovereign. It has rules on Debt/GDP to observe (and ignore). But effectively Italy borrows in a collective currency it has no real control over. It has to plead with the ECB for the right to borrow money and will rely on the ECB to announce special measures to make sure its debt costs don’t turn astronomical. Without the ECB, Italy would be heading straight for a debt crisis.

That’s why ECB head Christine Lagarde is desperately trying to guide the ECB towards the establishment of anti-fragmentation policies to stop Italian debt instability leading to a renewed European sovereign debt crisis. Fragmentation means Italian bond spreads widening to Germany – the European sovereign benchmark. It’s a political issue because Lagarde is no central banker, but a politician sent in to lead the ECB to the inevitable compromise that rich German workers will pay Italians’ pensions.

In the USA there is an even larger political impasse developing. The US Supreme Court’s decision – by 4 old men and one catholic woman appointed by Trump – to deny women the right to control their bodies by undoing abortion rights highlights the increasingly polarized nature of US politics. Republicans, and their fellow travellers on the religious right, are delighted. Democrats are appalled.

US politics simply doesn’t work. All efforts by Biden to pass critical infrastructure spending have been stymied. There is zero agreement between the parties – each has destroying the other at the top of its to-do list, rather than rebuilding the economy. The result is increasing doubts on the dollar. It’s a battle the Republicans are winning by dint of managing to stuff the Supreme Court with its appointees. It’s no basis for democracy or market stability.

At the moment the dollar is the go-to currency, and treasuries are the ultimate safe haven. It could change. The world’s attitude to the US is evolving. The West may be united on Ukraine, but global support is noticeably lacking. 35 nations representing 55% of the global population abstained from voting against Russia at the UN. The Middle East and India see Ukraine as a European problem and a crisis as much of America’s making. As the West lectures the Taliban on schooling girls, the Republican party has moved the US closer to a dystopian version of The Handmaid’s Tale of gender subjugation.

As the World increasingly rejects America, then America will reject the rest of the World. Time is limited. The Republican Administration, run by Trump, or kowtowing to him, will likely pull the US from NATO and isolate itself. That’s going to become increasingly clear over the next few years. The dollar, the primacy of Treasuries… will leave a massive hole at the centre of the global trading economy.

It will be particularly tough for Europe. As we seek alternative energy sources, what happens when Trump 2.1 proves as pernicious as Putin and shuts off supplies?

The supreme court decision was clearly timed to come at the Nadir of this US political cycle – a weak president likely to lose the mid-terms in November – when the Roe vs Wade news will be off the front pages. It means the damage to the Republicans in the Mid-Term Elections could be limited – they will still make the US essentially ungovernable for the next 3 years.

If the US was a corporate, it would be a massive fail on corporate governance. But it’s not. It’s the current dominant global economy and currency. Politics and markets can’t be ignored.

Speaking to CNBC, Harris, the founder of Cribstone Strategic Macro, said that a major issue for the UK economy is that its mortgage market is “heavily short-term”. He pointed to the contrast between much of Europe and the US, where many people opt for long-tenure mortgages instead of short-term loans of less than five years. Tracker mortgages, which fluctuate with the Bank of England’s base rate, are also popular in the UK.  

Harris said that the problem with this is that rate rises would immediately trigger losses to household incomes, though may not actually address rising inflation. Harris said that the UK “imports inflation” and that the effect of interest rate hikes by the country’s central bank isn’t simply a rebalancing of supply and demand. 

Last Thursday saw the Bank of England increase interest rates by a quarter of a percentage point to 1% — the highest interest rates have been in 13 years.

“Here. we’re actually not really dealing with a pure situation where we’re trying to slow the economy, we are ultimately trying to rebalance expectations, and the U.K. is a country that imports inflation ... So we’re not effectively in a position where we’re free effectively to just focus on supply and demand,” Harris told CNBC.

“We get stuck in a situation where global inflation is driving our inflation at this stage, we have to hit the consumer and instead of just reducing the propensity to spend in the future, we’re actually taking further money out of household income, which doesn’t happen in the US.”

With ongoing chaos caused to industry in the east of the country and a blockade of Black Sea ports in the south, Ukraine’s GDP is projected to drop by approximately 45% in 2022. 

The World Bank warned that Russia will likely also fall into recession, as will many other countries surrounding Ukraine, with some likely to soon require external support from international agencies to prevent them from defaulting on existing debts. 

On Sunday, the World Bank said, “The war is having a devastating impact on human life and causing economic destruction in both countries, and will lead to significant economic losses in the Europe and central Asia region and the rest of the world.”

“It comes at a particularly vulnerable time for ECA as its economic recovery was expected to be held back by scarring from the pandemic and lingering structural weaknesses. The economic impact of the conflict has reverberated through multiple channels, including commodity and financial markets, trade and migration links, and the damaging impact on confidence.”

The economy’s 7.5% expansion was the largest since 1941 and made the UK the quickest-growing advanced economy in 2021. In December, gross domestic product fell 0.2%, with the spread of the Omicron variant of coronavirus encouraging more people to stay at home. 

These recent figures are encouraging amid the cost of the living crisis, likely keeping the Bank of England focused on efforts to restrain rocketing inflation with an interest-rate hike looming in the near future. 

After being hit hard by a pandemic recession, the UK has enjoyed a strong recovery, accelerated by billions of pounds of government support for jobs and companies. At present, the country’s economy is set to outperform other Group of Seven nations yet again this year. 

However, despite the positive sign that these recent figures reflect, the UK is yet to return to its pre-pandemic levels of quarterly output. This is a milestone already reached by both France and the United States.

The two clear leaders in this emerging digital economy are the US and China. Their current dominance in platform-based enterprises means that they are the most prepared for the forthcoming wave of disruption, which is due to their ‘platform vision’, i.e., their understanding of the underlying logic and digital architectures of the new digital economy. China especially is demonstrating long-term strategic thinking with considerable investment and technology partnerships in other countries.

The impact of the digital economy is the result of two major disruptive innovations—platform-based business models and deep technologies such as data analytics, blockchain, quantum computing and advances in the life sciences such as nanotechnology. In order to understand how digital technologies are already revolutionising business, leaders need to develop an organisation-wide platform vision to overcome the conceptual confusion that often exists between digital businesses, systems and platforms.

These differing concepts can be best understood by looking at how the digitalisation of business evolved. At the start of the first internet wave in the early 1990s, companies started to build portals that provided new channels to market, powered by the first e-commerce technologies. Online portals such as AOL and CompuServe, and then mobile portals such as British Telecom's Genie Internet, created unified customer experiences by integrating information such as news, travel, weather, sports, and entertainment with the first generation of online shopping services.

As web technologies and digital user experience design practices developed, portals brought new channels, media, interfaces, processes and technologies into the economy. Following this phase, we learned to create new digital systems. A digital system is an integrated set of digital components, service interfaces and computational infrastructure that is highly scalable, available, and economically efficient. Some examples are customer relationship management (CRM) systems, learning management systems (LMS), and content management systems (CMS).

Our personal and professional lives will be changed dramatically with the introduction of virtual worlds called ‘metaverses’ - digital worlds which blur the distinction between our real-world and virtual lives with social media becoming more of a gaming experience.

In the following phase of digitalisation, these systems were integrated to create digital solutions capable of producing or augmenting critical business capabilities. An example is a multi-channel marketing solution that can send a range of messages such as emails, SMS messages and which defines rules, business logic, and market segmentation on communications workflows. So a digital solution contains multiple digital systems and critically impacts on one or more business capabilities.

Digital solutions usually have an internal perspective rather than user-centric platforms and are based on niche business capabilities. They are always created in a closed manner, meaning they cannot scale and extend to new markets and value propositions. Today, many modern startups are closed digital solutions rather than being built on an open platform logic. However, this does not stop these solutions from being positioned as platforms, resulting in conceptual confusion for leaders who are not fully digitally literate.

This architectural misunderstanding can present significant challenges for businesses that wish to transform digitally through acquisitions. Purchased businesses can often be challenging to integrate into holding companies because their digital systems are not interoperable. Digital solutions can be evolved into platforms through architectural re-engineering, a process that requires the various digital components to be made open for extension, evolution and reconfiguration.

Platform-based business models can be understood by categorising the way in which people interact with them in three core ways:

1) Core interactions

Relatively simple fundamental interactions which reinforce the core value proposition.

2) Volume functions

These allow a platform to increase the number of people who use it.

3) Exchanges of value

The access offered by a platform in return for users sharing personal information and content.

When these different forms of interactions are explicitly understood, organisations are then able to build platforms flexibly, meaning that they can be opened up with extensions to create new solutions created by external partners. It is this aspect that is transforming the very structure of our global economy, where the focus is no longer on single businesses but whole ecosystems. Today, for example, Instagram is not just a platform. There is an entire ecosystem of solutions that utilise the platform’s functionalities.

While at present digital technologies are behind the drive towards digital transformation, it is the flexibility and extensibility of platforms that is facilitating the next wave of innovation, allowing businesses to grow by rapidly customising the way in which they deliver value to customers and extending their offers into new markets and sectors.

Our personal and professional lives will be changed dramatically with the introduction of virtual worlds called ‘metaverses’ - digital worlds which blur the distinction between our real-world and virtual lives with social media becoming more of a gaming experience. While Facebook recently announced its new name Meta to reflect its new focus on developing its own metaverse, other innovative virtual worlds have already started to capture people’s imagination. Developments such as NFTs are now allowing digital-only fashion houses such as The Fabricant to work with brands such as Adidas, Puma and Tommy Hilfiger to produce highly desirable fashion that only has a digital existence.

The vision of metaverses being the experiential basis of the digital economy will be made possible through the breakthrough advances in quantum computing now being achieved. A team of scientists in China led by quantum physicist Pan Jianwei recently announced that their new Jiuzhang 2.0 quantum computer was 10 billion times faster than its previous version, meaning that it can solve a problem in one millisecond that the world’s fastest supercomputer currently takes about 30 trillion years to solve.

While practical and commercial solutions are still a few years away from being realised, leaders need to start understanding the implications for quantum computing now, in order to ensure that they are fully prepared for those specific areas in which this type of technology is suitable for. Extremely large data sets will be searchable almost instantaneously, and real-world complex problems that were previously intractable will soon become solvable, such as computation in physics, chemistry and cybersecurity and providing optimisation solutions such as Volkswagen Group are developing in transportation and JP Morgan are developing in financial services.

Society is now at a bifurcation point, and we do not yet fully know which new order will emerge from the current chaos and complexity. Many people are now sensing dangers from having a Meta/Facebook level of monopoly in the digital economy due to the controversies that have recently come to light. But at the same time, we should not allow these understandable concerns to stop our most creative designers and entrepreneurs to discover new ways of connecting, relating, transacting and being in the digital economy, elevating humanity and amplifying our impact in the digital economy of the future, whatever form it may take.

 Simon Robinson is the Global CEO of Holonomics and co-author of Deep Tech and the Amplified Organisation: How to elevate, scale and amplify your business through the New 4Ps of platforms, purpose, people and planet,

New data from the Office for National Statistics (ONS) shows that GDP rose just 0.1% in the month, below the 0.4% forecasted by economists, thanks to ongoing supply chain disruptions and staff shortages.

The figure remains below the pre-pandemic level of 0.5% seen in February 2020 and suggests that the UK economy was struggling even before the emergence of the Omicron variant in late November.  

The ONS said that services output grew back to its pre-pandemic levels, growing 0.4% in October. Meanwhile, output in consumer-facing services was up by 0.3% on the month largely due to an 8.1% increase in the wholesale and retail trade. However, output at hotels and restaurants dropped by 5.5%. 

“Growth disappointed in October, reinforcing concerns about the resilience of the UK’s economic recovery to the Omicron variant and the impact of further restrictions,” Alpesh Paleja, CBI lead economist, said.

“We need to create consistency in our approach and build confidence by reducing the oscillation between normal life and restrictions as we learn to live with the virus and its variants."

“Meanwhile, supply pressures remain acute and further rises in inflation are looming. We expect growth to build further momentum ahead, but more action is needed to address longer-term challenges, including “scarring” from COVID and poor productivity."

Following Boris’ vaguely described promise of a “high-wage, high-skill, high-productivity” economy during his speech to the Tory Conference, the right-wing Adam Smith Institute called the plan “bombastic, vacuous and economically illiterate.”  The CBI warned it’s a “fragile moment” and how empty ambitions and promises on wages and productivity could lead simply to higher prices.

Boris shrugged it off. He says all the necessary things for the Tory faithful: “I’m a staunch, low-tax Conservative who believes in an enterprise economy”, which is probably what Margaret Thatcher was thinking before she junked the UK’s ageing manufacturing base 40 years ago. A political lifetime is next week. Political consequences can take decades to emerge – Thatcher’s programme ignited the fire of Scottish nationalism and set the UK on course for a potential breakup.

Boris Johnson is a master of the soundbite moment. Now he’s telling the world the UK will be the “Qatar of Hydrogen” – yet I doubt he has any real familiarity with the enormous problems that will accompany the hydrogenisation of the Global Economy. Still, it sounds good ahead of COP26.

The City of London’s markets are concerned with immediate threats. They fear the multiple storms lurking on the horizon: inflation/stagflation, trade, recession, government debt, taxes, consumer confidence, and geopolitics. These are the normal ups and downs of markets that competent governments and functional economies take in their stride.

Boris Johnson is a master of the soundbite moment. Now he’s telling the world the UK will be the “Qatar of Hydrogen” – yet I doubt he has any real familiarity with the enormous problems that will accompany the hydrogenisation of the Global Economy.

These economic squalls only become truly dangerous storms when they trigger serious economic damage, or the ship of state is no longer fit to ride them out. And that’s what really worries markets deep down about the UK. It’s the absence of a discernible joined-up strategy to address the UK’s economic reality that scares the City. The government’s competency is increasingly being questioned.

The reality is the crises are already upon us: supply chain fractures, diminished opportunities and social mobility, Brexit, Europe, a dearth of innovation and entrepreneurship, rising real and relative poverty, insufficient wages in unattractive jobs, decaying infrastructure, crushing bureaucracy, a dysfunctional housing market, and ossified unfit-for-purpose public services.

They can be solved – but not separately. Addressing these issues holistically requires time, money and joined-up thinking. But, there is little joined-up thinking – just triage offering sticking plasters to be slapped on gaping economic wounds, or telling the victims it’s “transitory”. Not enough lorry drivers? Let’s bring in Europeans on three-month contracts! Energy bills unaffordable? Wrap up well then!

Rather than address these issues through policy, it feels like the UK’s economic future is being gambled away by Boris betting his political popularity will see him through. He’ll bluster past any problem hoping that it all sort-of-comes-together around the “hi-wage, hi-skill, hi-productivity” soundbite economy he promised us. If it doesn’t, he’ll wage the next election promising it’s coming – assuming he doesn’t jump ship into some high-paying private sector role.

Politics and Policy sit uneasily together. Yet, never has the UK required joined-up economic policies as much as today. The big question is – do the Tories have the political competency to deliver? There is – apparently – “tension” between Chancellor Rishi Sunak and Boris.

• Sunak has a problem. In the absence of his party being able to put together any viable alternative plan, he sees the need to anchor the government’s credentials via economic orthodoxy; austerity and spending cuts, reining back borrowing and raising business and personal taxation to pay for it all.
• Boris’ political senses are appalled – he’s not minded about concepts like spending limits. He regards government borrowing as his personal piggy bank of political popularity. Why not build a new Royal Yacht? Why not borrow more to rebuild a stronger economy.

Which one is right?

Perversely, it might be Boris. The success of governments around the globe in raising and distributing billions in pandemic support spending packages without causing government debt markets to implode should have been a light bulb moment. Since the last economic crisis in 2009, we’ve proved devasting austerity is not an answer while other solutions, including printing money, are available and proving practical. Wake up to the possibilities of fiscal boost and new monetary policy.

Let’s be clear: there is no free Magical Monetary Tree of unlimited government spending – but the markets are open for smart, credible governments to sell more debt and create more money. The key word is credibility – and avoiding policy mistakes. The UK spending itself out of its current hole should be entirely feasible. Rather than hiking taxes and cutting the modest £20 a week targeted helicopter money of universal credit to the poorest 10% of the economy, the government could keep the economic wheels spinning through the current supply chain/recession/stagflation threat.

Rather than address these issues through policy, it feels like the UK’s economic future is being gambled away by Boris betting his political popularity will see him through.

Sunak’s plan to impose austerity and tax hikes as we enter a potential stagflationary environment could prove a recipe for a confidence breakdown. It looks a classic policy mistake.

What’s the alternative? Well, that’s difficult. Politically it’s impossible to tackle the ever-hungry spending behemoth the National Health Service has become. But it’s critical it’s done – refocusing it to deal better with the modern age and the diseases of the old and infirm. It’s now in long-term crisis as it scrabbles to refocus post-pandemic – costing billions. Staff are underpaid and demotivated – costing more billions. Yet the NHS was recently advertising 200 plus senior managerial roles paying more than the prime minister. Modern tech can help – fitness and diagnosis can digitise, but the government has a peculiar ineptitude with new systems. Unless the government addresses the growing burden of public sector pensions – the entire UK tax take will soon be directed to paying the retirement costs of state employees. But to even suggest it – would again be political suicide.

There are a host of other policy initiatives the government could consider, but sadly they are the kind of concepts Boris and his fellow Oxbridge PPE rejects don’t have the imagination or political bravery to explore. I reckon Sunak probably does – but he’s got to bide his time.

As a primer Boris needs to understand good and bad government spending – and integrate them into his political calculus. Creating economic growth through a fiscal boost to companies to create jobs, growth, and build infrastructure is good. Solving skills shortages by paying doctors, nurses, engineers and HGV drivers to train, rather than charging them, would work. Spending money on fast, small Nuclear energy solutions and tidal power – tick. Helicopter money has been shown to work in a crisis. Markets accept the QE money creation trick – it works.

Ask difficult questions: Why are we charging students for their education? Why aren’t we paying them to upskill? Why aren’t we spending more on the armed forces in a period of rising tension to generate greater security, but also multiplier effects across the economy? There are a million more to be posed…

There are positive signals beginning to emerge – but aside from lots of words, there seems to be very little strategic thinking going on in the party of government to actually deliver these hi-skill jobs and raised productivity.

Words are cheap. Action is difficult.

Bill Blain is Strategist at Shard Capital and author of the Morning Porridge markets blog: www.morningporridge.com

Health, transport, and the cost of living were sharply focused on in the chancellor's speech, with changes announced including the removal of the freeze on public sector pay and an increase to the national living wage. 

Sunak emphasised the growing proportion of people in jobs as well as the country’s economic bounce back from the pandemic so far. “Our plan is working so far,” Sunak said, although, “the budget does not draw a line under covid, we have challenging times ahead.”

The chancellor addressed the pressure inflation is putting on the UK economy, as well as the strains caused by the ongoing supply chain crisis. He warned this could “take months to ease”, but the government is therefore planning to pump new funding to improve lorry park facilities and will freeze vehicle excise duty for HGVs. 

Total departmental spending is set to increase by £150 billion by 2024-25, with the government promising a “new economy” for the country. Sunak said the spending increase is the largest this century. 

Kevin von Neuschatz, Group CEO at Stanhope Financial, explains how the post-pandemic recovery of SMEs can be expedited.

When the full extent of the pandemic was first revealed, governments around the world offered generous loan and furlough support schemes in an effort to keep companies afloat. Yet the fact remains that the majority of businesses will have lost customers, suppliers, and partners during this difficult period, and it will take time for things to return to normal.

Critical Support For SMEs

The pandemic also provided the big banks with the opportunity to offer critical support, and many did so. From mortgage protection plans to low-rate interest loans, there are numerous examples of large financial institutions doing their best to support the recovery. Yet the fact remains that for small and medium sized enterprises (SMEs) tier one banking services have remained out of reach for many years. This problem first arose during the 2008 financial crash, which triggered recessions in major economies around the world. Credit lines were pulled, due diligence, background checks and borrowing estimates revised, all making it harder for smaller firms to secure credit and finance.

The tidal wave of financial restrictions triggered by the 2008 crash also meant that many big banks withdrew their services from emerging or high-risk markets in an effort to reduce risk. The sad fact is that for many companies seeking access to high quality financial services, from payments to FX support, the banking infrastructure simply no longer exists anymore. 

Throw in the chaos of the pandemic, with many businesses struggling to bounce back and the lack of support is profound and urgent. In the UK for example, there are around six million SMEs, which are a major source of employment and support for the wider national economy. Anyone who has ever founded a start-up business knows just how hard it is to attract investment. Many of these organisations are in the early stages of developing their product or service and it can take time to build a strong customer base and accelerate growth. These businesses would also benefit from new talent but paying sky high salaries is often a high-risk strategy when margins are tight. 

The bottom line is that many of these companies need external financial support. Bank lending is the most common source of external finance for many SMEs and entrepreneurs, which tend to be reliant on traditional debt to fulfil their start-up dreams. While it is commonly used by small businesses, however, traditional bank finance poses challenges to SMEs, in particular to newer, innovative and fast-growing companies, with a higher risk-return profile. 

The New Normal For SMEs

While bank financing will continue to be crucial for the SME sector, there is a broad concern that credit constraints will simply become “the new normal” for SMEs and entrepreneurs. It is therefore necessary to broaden the range of financing instruments available to SMEs and entrepreneurs, in order to enable them to continue to play their role in investment, growth, innovation and employment. It is now highly important for SMEs to provide credit as well as have legitimate loans, trading and payments support in the post-Covid climate. SMEs could try crowdfunding, or donations. In recent years, with the support of public programmes, it has become increasingly possible to offer hybrid tools to SMEs with lower credit ratings and smaller funding needs than what would be the practice in private capital markets.

Obtaining access to credit and payments support is critical for many businesses seeking to survive and thrive in a post-Covid economy. The time has come for tier one banking services to be accessible to companies of all sizes, and not just reserved for larger, more established companies.  The answer is to work with specialist fintech providers that can combine speedy online services with actual consultancy and advice to ensure the best products are purchased and delivered. 

For ambitious businesses keen to reboot following the devastation of the pandemic, the time for accessing tier one banking services is now.