Alphabetti Spaghetti

Business confidence post-lockdown and how will the UK recover economically from the pandemic?

As we ease out of lockdown and into the new normal, the focus is shifting towards what is needed to help kick-start the recovery, and how the future economic landscape could evolve. The news that over 13,000 people in the UK are set to lose their jobs after a number of businesses announced cuts in just a few days, comes as the country prepares for its own ‘Independence Day’, when pubs, restaurants, hotels, and hairdressers tentatively re-open as they are ‘Reborn on the Fourth of July’. So, while some firms are planning their return, others are shutting up shop for good.

But how does this translate into business confidence and economic recovery? And what does this mean for international trade, and therefore the currency markets? With a number of differently-shaped recoveries being touted, it’s hard to tell, and nobody has a crystal ball. Here is a closer look at three letters doing the rounds in terms of economic performance measurement after this sharp decline.

L for Lethargic

The most negative of predictions, and luckily not the most popular, some do worry an L-shape, characterised by persistent unemployment and stagnant economic growth, is what we may be looking at. Trade tensions and Brexit negotiations coming to a standstill, coupled with potential pandemic resurgences and large local lockdowns could push the UK economy to recover poorly. While this gloomy outlook may look very pessimistic, it’s important to note that the 2008 Great Recession took a similar shape, taking years for GDP to return to the same levels, and this economic recession is predicted to be worse - Rishi Sunak, the Chancellor of the Exchequer, said to the House of Lords Economic Affairs Committee:

“We are likely to face a severe recession, the likes of which we haven’t seen.”

W for Wobbly

A second wave of the virus, or resurgences causing local lockdowns and travel bans, could push recovery into more of a bouncy W-shape. There’s lots of talk that over the pond they could be looking at this sort of performance as the US struggles with large outbreaks of coronavirus in various states such as Florida and Texas. It should not go unnoticed, and Trump will be fully aware, that both will be key swing States for the upcoming election on 3 November. The low expectations of policymakers and economists on the outlook of the job market as the government unwinds its furlough scheme saw the Bank of England’s Chief Economist Andy Haldane emphasising that the economy was still facing an unprecedented collapse, with unemployment posing a real threat to recovery. As I was reminded by the British Chambers of Commerce recently, we must keep a close eye on 18 July, as that would be the start of a 45 day consultancy period for many major businesses in the UK.

Household spending accounts for well over half of the economy’s GDP, meaning consumers need to have confidence, as well as a bit of spare money behind the sofa to spend. However, they may be wary of shopping and going out and about without a vaccine, and this could risk the economy dipping up and down before starting a more sustainable long-term recovery, potentially when a vaccine arrives.

V for Va Va Voom

The OBR has predicted a fast bounce-back, a V-shaped recovery. These figures were heavily based on lockdown seriously easing at the end of Q2, which the UK is on track to do. This week, the MPC’s most Hawkish member, Andy Haldane noted in his presentation, ‘The Second Quarter’, that the UK is on course for a V-shaped recovery, stating that recovery is coming sooner and faster than expected, bringing with it the risk of higher inflation.

Stronger than expected consumer spending is behind this confidence, so maybe we will all be rushing to the shops and pubs in the next few weeks, albeit socially distanced at one metre plus. Spending on DIY and household goods apparently has helped, as we all realised a glass coffee table and a saggy sofa wasn’t the best home office space, especially given that this might be our reality for some time to come. Car and home sales, stifled in the earlier days of lockdown, have seen a dramatic rise. Savings for holidays are now able to go on other things, for some. For many though, times are still hard, and could get harder, so there is a note of caution.

However, this speech would have traditionally helped sterling out but, similar to the passing of the date by which Brexit can no longer be extended, there was little market reaction. It was the sort of talk that encourages currency buyers, but they were absent. Instead, there was more interest in the PM’s ‘Economy Speech’, where he presented with enthusiasm ￡5 billion of capital infrastructure spending. Sterling gained half a US cent and three quarters of a euro cent, strengthening by an average 0.3%. In other words, the markets are still as unpredictable as ever.

Although sterling been relatively stable towards the tail end of Q2, let’s not get caught out, liquidity can dry up very quickly and markets can become whippy, with currencies bouncing up and down in the blink of an eye. News is coming in thick and fast and investors are nervous, meaning if you do business abroad, then your cash flow could be affected. 

Ultimately fluctuating currency value means costs from overseas don’t remain static, and revenue can’t be guaranteed.

In our ‘Post-Lockdown Performance’ webinar next week, which I’ll be hosting with Economist Vicky Pryce, we’ll be covering currency risk management and how moneycorp can help businesses focus on their pressing day-to-day priorities.

We’ll also be discussing:

• What will be the ‘new normal’ for businesses and individuals as we ease out of lockdown?
• How could the UK cope if we went into lockdown again?
• How can the UK recover from its increasing debts?
• What happens when government support is unwound and will it need to be extended?
• How will other global events affect business appetite and in turn market movements?

If you buy or sell goods and services internationally, this will be a very useful webinar to guide you through the post-lockdown world. Most importantly, this is your final opportunity to witness my out of control hair and beard before I shed my ‘Wild Man of Wimbledon’ image and get my long-awaited trim later that evening.

Please register here:

https://attendee.gotowebinar.com/register/2547978967383198733?source=Lee+blog