This week started with the need for clarification around what actually changed during the government announcement on Sunday. A clear, consistent message from Westminster and the devolved governments would have been helpful but political capital seemed to take priority.
Views are polarised: Scientists and Healthcare professionals highlight the health risk of a secondary infection wave as lockdown is eased to kick start the economy while business highlights the economic risk of continued lockdown. It’s a dilemma.
Different national approaches have had varied outcomes however, testing and tracking capabilities seem closely correlated with the degree of success achieved. Deciding on the strategy is yet another dilemma.
The extension of Furlough has been well received. It’s genuinely good news while perhaps conveniently deferring or masking unemployment levels until better times. As the rising costs of financial support are reported, the question of affordability and repayment are of course raised.
The FT reported estimated additional tax receipts by an increase of 1% on the basic, higher and additional rates of income tax as being £4.7bn, £1bn and £105m pointing out the manifesto pledge not to increase taxes (or reduce public spending). Higher income tax means less consumer spending which is an needed for recovery.
The chancellor had planned to borrow £55bn this year which is now reported at £298bn, possibly rising to £337bn. It doesn’t seem unreasonable to suggest this may increase further. Against this and the less quantifiable but significant, broader costs of lockdown, it seems almost irresponsible not to unlock those sectors of the economy which can return to work while protecting the health of workers and the wider community.
The extreme volatility in financial markets has reduced and both the daily and weekly range of trading, in other words the variation in prices, has narrowed. The usual caveats remain in respect of how markets could react to a second wave of infection but also an increase to unemployment figures and of course corporate earnings (company profits).
Markets react well to positive news and industrial production in post lock down China saw a year on year increase of 3.9% in April after a contraction of 13.5% in January. Retail sales are down only 7.5% for April compared to last year. Despite ongoing trade spats with the US China is getting back to work as we in the western world will too. Having worked from home throughout lockdown, I look forward to interaction with colleagues in the workplace once again. The thought of eating out with friends and family remains a step too far for my imagination at this time!
In the meantime, have a good weekend.
Regards
Kenny