Welcome to our June bulletin
The government begins its campaign to kick start the economy this week with the reopening of Pubs, Restaurants, Hotels, Hairdressers and Shops.
As part of his plan to 'overcome and recover' from the coronavirus pandemic, Boris Johnson has also announced this week several major initiatives, including significant investment in schools, new infrastructure projects and 'air bridges'.
The pandemic is not by any means over. The Government is still wrestling with which restrictions to ease, which to keep, and very possibly (in the case of Leicester for example) which to restore. All of this comes at a time when compliance with the lockdown appears to be fraying.
Governments across the globe say their approach to coming out of lockdown has been 'guided by science' but, in reality, science doesn’t guarantee a successful recovery from the pandemic. There are no vaccines around the corner and many basic questions are still unanswered: how the virus spreads, how many have been infected and why children seem immune. It is politics and not science that will dictate the path out of lockdown.
We may have been critical of the Government during this crisis but, every country is feeling their way, searching for the right path. One of their biggest concerns is that, after months of mandatory isolation, although we are now free to go the shops, pubs, restaurants and to start spending again generally, some people are still extremely anxious and may well decide that they don’t not wish to venture out too far, or too often.
Untold damage to the economy by coronavirus has left the country with debt levels not seen since the Second World Wars and it will take years, probably decades, to restore the economy to something like normality.
Throughout this period we have seen a Conservative Government bailing out business and private citizens alike, in a manor more in tune with socialist policies than the traditional capitalist approach of letting the weak fail. How times have changed!
Five likely longer-term impacts of the pandemic:
1. Low interest rates for longer. The global economy has taken a huge hit from the pandemic and interest rates are zero. With a lot of economic spare capacity inflation will stay low for the next couple of years at least. This will keep rates low for the foreseeable future.
2. Less globalisation. Globalisation was already in reverse before COVID-19. The 2008 financial crisis undermined the trust of many people the free market model. The backlash continued with Brexit, the rise of Donald Trump and the U.S./China trade war. The virus is accelerating the anti-globalisation trend.
3. More Government debt and a bigger share of Government in the economy. The lockdowns are leading to the largest rise in debt levels since World mWar II and higher levels of support for industries. Eventually, the debate will turn to how to pay for the lockdown support measures.
4. Pressure on profit margins and slower economic growth.
5. Higher inflation... eventually. Inflation should not be a problem for the next couple of years. However, in the long term, inflation could rise by more than expected. Globalisation was deflationary and its reversal will be inflationary.
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