Shops on the high street have opened up again – but are consumers ready to spend?

The best case is that come the end of 2021, the world economy is back above the level it was last year, writes Hamish McRae. The worst case is that pre-Covid output won’t recover until much, much later

Camden High Street, normally brimming with crowds, is deserted during the lockdown (PA)

Rishi Sunak, the chancellor, wants Britons to hit the shops. But will we? So-called non-essential shops are opening across Britain today, and this week it looks as though the Bank of England will give another push to pump money into the system.

It is a start, but only a start. The pubs and restaurants? Well, that looks like another two or three weeks before they will open, and it may not be much fun when they do. So for the UK, it will be a halting, unsteady return to not-quite-normal.

The rest of the world is heading in the same direction, albeit at different speeds and in many cases faster than the UK. The most interesting example of that is the United States, where there is a massive difference between sparsely populated states out west and the most populous coastal ones.

According to Google mobility data, Montana and Idaho are back to normal levels of activity, whereas New York, New Jersey and California are running at close to half the pre-Covid levels. The US is also carrying out an experiment, with some states opening ahead of others, and there are worrying indicators that coronavirus may still be gaining ground. Hospital admissions of people with the virus have risen by more than 40 per cent in Texas in the past week.

In Europe, there is a similar pattern of countries opening up at different rates and worrying upticks in the number of cases. The general reopening of tourism starts today (Monday 15 June). But it is staged, with not all borders open, and for UK travellers there is the added complication of having to put oneself into quarantine on return. There are also reported increases of cases in some countries, including Portugal. Confusion will continue for a few weeks yet.

However, as a general proposition, there is little doubt that the corner has been passed as far as the first wave of the pandemic is concerned. Whether there will be a second wave we just don’t know. This point – that the corner is past – has enabled the economic forecasters to calculate with a bit more confidence how the various national economies are likely to perform this year and next.

The results, however, are not good. The OECD made headlines last week by predicting that the UK economy would shrink the most this year among the major countries, more than 10 per cent, though it also forecast that it would have the sharpest rebound next year. Barclays is slightly more optimistic, expecting a decline of “only” 7.5 per cent, which would be a little better than the eurozone. The Nordic bank SEB thinks the eurozone will be down 9 per cent this year. The IMF will come up with its new estimates next week on 24 June and we are told they will be worse than previous numbers.

The big question, and this goes for all economies, is not now how far do we go down but how quickly we come up. That is why the next few weeks matter so much. The best case will be if, come the end of 2021, the world economy is back above the level it was at the end of 2019. The worst case is that we won’t get back to the pre-Covid level of output until well into 2022 or even later.

The next few weeks matter because they will give us a feeling for how eager people are to get back to what was normal. Normal means buying things in the shops and going out for a drink or a meal in the evening. If we don’t spend, vast swathes of jobs go. And if those jobs go, people even in more secure jobs will hunker down. That is why Sunak is so concerned about the two-metre distancing rule. If people are not confident in practical behaviour, they won’t spend money.

There is an inevitable temptation to see this in national terms: will our own country, whichever it is, come out better or worse than the rest of the pack?

That is understandable but not very helpful. All our experience of the way economics work is that the business cycle is a global one. So when a recovery does take place, everyone will be pulled up by it. But inherently fast-growing countries will remain fast-growing ones, and vice versa. The national issue is whether one country can do a little better than it otherwise would have done by having more effective policies – or more confident business and individual responses – when hit by a shock.

Now that the long, difficult trudge back up has begun, confidence is the key. More than any other single factor, the pace at which we can recover depends on that.