After a year of Covid, get set for the technology-driven boom

What is so astonishing is that he gets away with it. If he were the chief executive of a FTSE 100 company, his penchant for constantly overpromising and under delivering would soon have him out on his ear. The Prime Minister seems to have learnt nothing of the art of expectation management. Yet people want to believe, and they therefore forgive his repeatedly disproved boosterism. The PM’s optimism is infectious; unjustified it may be, but the voters plainly like it.

On the economy, however, he may be proved partially right. Things will bounce back fairly rapidly as soon as social distancing restrictions are removed, making recovery to pre-pandemic levels of activity by the end of the year eminently possible. International travel may take a little longer to revive fully, but this shortfall could easily be compensated for by other forms of pent-up demand.

Excessive levels of enforced saving during lockdown ought to provide the means for a flood of binge spending and partying once the virus is properly defeated. Worryingly, the idea that both the domestic and global economies will surprise on the upside this year and next has become quite fashionable, so much so that it is, in fact, the new consensus and is already pretty much factored into share prices.

That leaves plenty of scope for disappointment. All the same, I don’t buy the gloomier prognosis – that the outlook is much more likely to be governed by deflationary forces than inflationary ones.

Admittedly, it is an easy enough case to make. Covid has stripped a lot of people of their livelihoods, with more to come once the fig-leaf of furlough is removed. That’s why the authorities need to ignore the urge for premature tightening, and keep their feet flat down on the monetary and fiscal accelerators. The economy has shown itself to be remarkably adaptable to the challenges of lockdown, with all kinds of new businesses in the digital and delivery spheres to compensate for the demise of the old. This ought to pay rich dividends in productivity growth in the years ahead. But it is vital to keep supporting demand until the new economy is properly bedded in.

I wouldn’t much fancy being in retail and office real estate right now. The high street is never going to come back in its previous form – that much is clear – while a number of the big professional services companies are about to substantially reduce their demand for city centre office space and permanently switch to remote working instead. That has big knock-on effects for established ancillary services. But just because fewer workers are concentrated in city centres doesn’t mean that overall demand is weakened; it merely shifts the focus, making it more diffuse. Covid has sparked major structural changes, but mostly welcome ones.

As for Brexit, I doubt that’s going to make much difference one way or the other in the medium to long term.

It’s always been more of a political endeavour than an economic one; I don’t see it either significantly undermining the economy, or much bolstering it.

The big driver of economic progress to come will, as ever, be technology, and this doesn’t much recognise national borders. Some will be slower than others in adopting it, but one way or another it will be lifting all boats in the years to come.