Hello, and welcome to our latest client update, in the week that saw the countries of the UK take the first steps, albeit at different speeds, towards easing the lockdown which has been in place since 23rd March.
This was a week with a lot of news, both good and bad, so we’ll get straight into the detail. As usual, the stock market figures quoted were correct at close of business in the relevant market on Wednesday evening. This commentary was written on Thursday morning, and then updated after the Government’s 5pm briefing.
The main news this week was that the UK economy had only contracted by 2% in the first quarter of the year. We write ‘only’ as most experts were predicting a fall of around 2.5%. In a similar vein, the economy contracted by 5.8% in March, against an expected fall of 7.9%.
Clearly there are far worse figures to come in April – when the country was in lockdown for the whole month – but so far the UK is at least holding its own. The French economy, for example, contracted by 5.8% in the first quarter.
We have heard from both the First Minister and Prime Minister’s about ‘first steps’ and roadmaps to exiting lockdown to rebuilding economic activity. This is going to be an enormous undertaking, and not just in the UK. In the US, 33m people have now lost their jobs, with the unemployment rate standing at 14.7%. But that figure is dwarfed by unemployment in India with a reported 122m people – roughly twice the population of the UK – losing their jobs in April.
What is interesting about these statements is the tone; understandably both focus on steps to lessen effects of lockdown whilst staying safe, but whist the UK Government focus is on getting back to business as normal, the Scottish ‘road map’ seems based in a more reflective and aspirational tone with an emphasis on social justice and wellbeing. These are fine words but I’m sure many of us will be hoping to see positive action too.
Unsurprisingly, consumer confidence has taken a battering: a major survey reported that it was “severely depressed” in the UK. Equally, despite all the Government initiatives, a third of small firms believe they are in imminent danger of collapse. Chancellor Rishi Sunak has conceded that the country will face a “significant recession.”
There is, though, plenty of good news and optimism to set against the gloom. The new Governor of the Bank of England, Andrew Bailey, is optimistic that the UK economy could bounce back quickly. In the Bank’s latest report, he talks of ‘huge rises, as the economy is put back to work.’
Certainly the Government continues with supportive initiatives, with the Chancellor extending the furlough scheme to October and support packages also now available for the self-employed.
We monitor 13 world stock markets for the update: usually the vast majority move in step, be it up or down. This week, though, was mixed: six markets rose, seven fell – although, once again, in a narrow range. For the time being at least, we seem to have seen the end of the sharp fluctuations which marked our earlier updates.
The best performance this week came from Japan’s Nikkei Dow index, which rose 3% to 20,267. All the markets in the Far East were up – albeit by only small amounts – while the Indian stock market rose 2% to 32,009 as the government there launched a $264bn (£216bn) Coronavirus rescue package.
All the markets in Europe fell slightly during the week, with the exception of the UK’s FTSE 100 index, which rose 1% to close Wednesday at 5,904. America’s Dow Jones had a poor week as US/China tensions rose again: it fell 3% to 23,248.
The pound was down against the dollar during the week – but for those people who like to keep things simple it closed at $1.2222 where it was down (obviously) by 2%.
This week – more than any other since we started writing this update – the news has depended on your perception of it.
Yes, UK GDP fell in the first quarter but, compared to other countries, we did relatively well. Nevertheless, the BBC – and plenty more of the mainstream media – went with ‘UK economy shrinks at fastest pace since 2008.’
There are economists-a-plenty telling us that ‘the worst is yet to come’ and that the UK ‘is heading for the biggest crash in 300 years.’ Importantly, there are is also a growing cohort of behavioural, social and climate economists who recognise that our futures are not all about GDP (gross domestic product).
The question is whether you side with the optimists – like the Governor of the Bank of England – or the pessimistic media. We err, but not uncritically, towards the former camp. Our economies have been built on trading and new companies will find new ways of bringing new products to new markets. Right now we see lots of innovation and ingenuity being brought to bear in businesses retooling activities to solve coronavirus led problems. We just need to ensure that this can be done in a more just, sustainable and ecological manner than before – sadly messages such as “go by car and stay off public transport” are not that encouraging.
I’m glad to say that the leading investment mangers of ethical and sustainable funds, that you are invested in, do take heed of these issues. They are making decisions not only designed to help maintain your financial wellbeing but the impact of that economic activity on the wider world.
Need to learn a new lockdown skill? How about a crash course in ‘alternative’ economics?
For those with fifteen minutes to spare, I suggest dipping into Kate Raworth’s Doughnut Economics and for some lockdown reading around how economies could develop in the future, you might like to look at Tim Jacksons Prosperity without Growth
With those hopeful thoughts, we’ll leave you for another week.