It’s certainly been a dramatic week. Widespread demonstrations in the Western world for the Black Lives Matter movement flouted lockdown rules, but managed to place matters of racial division at the top of the political agenda in a way not seen for decades. No mean feat in the current Coronavirous pandemic crisis. However, many were tarnished by acts of violence and public disorder, with significant damage to public property and businesses.
Meanwhile data has begun to emerge that paints a stark picture of the financial impact of lockdown measures on the UK and other world economies.
APRIL GDP DATA SHOWS CLIFF EDGE DECLINE
Figures released by the Office for National Statistics today show that UK gross domestic product (‘GDP’) went over the edge of a cliff in April. The figures suggest our economic productivity shrank by a record-breaking 20% in a single month, the first month in which lockdown measures were imposed in full. With May figures likely to be equally as grim, we are now beginning to see the potential longer term impact of the Coronavirus crisis on the UK economy.
We can however take some succour from the fact that much of this reduction in productivity is due to the widespread hibernation - rather than the extinction - of many British businesses. This creates the potential for some of these companies to re-emerge and thrive as lockdown measures lift. There remains a huge amount of pent up consumer demand and spending waiting to be unleashed. Much now depends on businesses being able to meet and capitalise on this demand. If they get this right, then there is the potential for a significant bounce back of GDP before monthly and quarterly movements move closer to historic norms and a more sustained march towards economic recovery can begin.
Loan schemes for businesses large and small have been deployed rapidly and hopefully will also help many businesses ‘bounce back’ from their lockdown hiatus. However, it is likely to be a bleary-eyed return for many, with job losses and restructuring ahead, whilst some businesses will not return at all.
Whilst supportive, there is only so much that cheap corporate borrowing can do and when this begins to run out of steam, it is likely that significant further government measures will be required. The old tool of monetary policy (reducing interest rates to encourage spending) is already fully spent, with base rate already at 0.1%, so government spending and borrowing will likely be a necessity. The latter would mark a significant departure from traditional party policy for the conservative government, but unprecedented times are going to require creative thinking for our political leaders, the business community and society at large.
Given that the cost of government support has reached an estimated £20bn already, it is unclear how further support measures will be funded - and perhaps more importantly – will be paid for in the future. It seems likely that we face higher taxes in the years to come, but for now with the government desperate to nurse a badly wounded economy back to health, it is highly unlikely we will see any measures such as this that might deter public spending for some time yet.
In the meantime the government’s radical support scheme has resulted in more than one in four UK workers being furloughed. With the scheme now being gradually phased out over the months ahead, we wait with some trepidation in the hope that most will have jobs to return to.
RAISING MONEY FOR YOUR CHARITIES
At Wetherall’s we take our social responsibility seriously and try to do our bit for charitable causes, be it donating to certain charities, or supporting you with your own fund raising projects. One of the questions we asked in our recent client survey was for you to suggest local charities that were important to you that we could potentially get involved with. This led to the nomination of three charities; Christie’s Cancer Support, Macclesfield Cancer Help Group and Alderhey Children’s Charity. We also received some requests to support local homeless charities.
As a team we’ve been discussing what challenges we could undertake that would adhere to social distancing. An idea that has gained some traction is a team hike up Mount Snowdon to raise money for charity. Now I must confess, whilst I can boast to have climbed many of the tallest mountains in the Alps and Pyrenees, this has been in the seat of a car, so hardly relevant experience. Fortunately however our financial planner Josh is an experienced hiker and mountaineer, so we have just the man to help us prepare and to guide us up Snowdon (and hopefully safely back down again - no pressure Josh!).
We’re aiming to take on this challenge later this year to raise money for your nominated charities, so will let you know once a date has been set and would be grateful for any donations. In addition to the motivation of raising money for good causes, we are also reliably informed there is a good pub nearby once our descent is complete, so in the words of David Bowie, hopefully the beer lights will help guide us too!
With that I’ll close for this week and wish you a pleasant weekend. If you have any questions about anything covered this week please just let me know. Furthermore, if you have any suggestions for other activities you would like to see us participate in/ subject us to (nothing too painful please) we would be glad to hear them.
