By Dafydd Rees, Partner
Good news has been in short supply over the past six months. So, what you are about to read may come as something of a shock.
Medical advances in the fight against COVID-19 have coincided with surprising signs of economic momentum, here in the UK and beyond.
There’s renewed optimism and hope that the wider impact of the pandemic may not prove to be as bad as many had first feared, myself included.
So, let’s consider some of the reasons why, as we used to say back in the last decade of the last century, things can only get better.
There is mounting evidence that as the pandemic has progressed, health experts have been learning and sharing valuable lessons in how to fight the virus more effectively.
- More patients are surviving in intensive care. Infections are proving less deadly as treatment for the sickest patients has improved.
- While positive tests may have been increasing here in the UK and in Europe since the first week of July, hospital admissions and deaths are at a record low in Britain.
- The anti-inflammatory drug Dexamethasone is a low-cost treatment which has cut mortality rates.
Of course, a COVID-19 vaccine will prove to be the ultimate gamechanger. According to the Milken Institute, there are more than 300 treatments and over 200 vaccines currently in development around the world.
Our best hope is that a combination of techniques and treatments will overcome the worst effects of the pandemic. These will include preventing the virus from entering cells, then stopping it from reproducing as well as supporting the body’s immune system against the infection.
The economic impact of the lockdown and the inevitable recession which was set to follow have loomed large since the first days of lockdown back in March. But in the past few weeks there have been encouraging signs of progress.
- Monthly output in the UK surged in June by a record 23.5%. Analysts at BNY Mellon Investment Management predict we are past the worst. Citibank now expects the UK economy to grow by 15.5% in the third quarter of 2020.
- In July, retail sales in the UK regained all the ground lost during the months of the pandemic according to the ONS. Britain’s response to the lockdown has been to turn to DIY. The price of wood has hit a record high as we give the garden shed and fence a new lease of life.
- UK households are better off. In aggregate we have lower debts and the total level of savings is up. Its prompted hopes of a relatively rapid return to previous consumer spending habits.
- Real time data from Jefferies Investment Bank indicates that the UK is recovering faster than many other advanced nations. The Lloyds Banking Group recovery tracker shows the UK economy doing better than either the US or the Eurozone.
And it is not just consumers who look to be bouncing back. Business surveys in both the manufacturing and services sectors show evidence of both new orders and rising levels of confidence.
- Large companies have proven to be particularly robust and resilient. Cash balances at the largest UK listed non-financial companies on the FTSE 350 index are up by 30% to more than £200 billion.
- The international business outlook gives more grounds for optimism. US retail sales are 2.5% above their pre-COVID-19 peak while the construction of new homes rebounded by more than a fifth in July. The outlook for the German economy has improved for the fourth consecutive month, according to the IFO survey.
- The belief that COVID-19 has done its worst is a prevailing narrative for financial markets and driven some to a record high. Expectations of volatility on the currency markets are low.
Complacency is a danger. The prospect of a second wave of infections in the coming months cannot be discounted but any second national lockdown is not a realistic prospect. Localised lockdowns such as recently took place in Leicester look to be the best way forward.
Many key sectors of the UK economy including retail, leisure and hospitality, tourism and travel face difficult times. The CBI is right to urge office workers to return to our city centres.
Job losses are a reality, though initial UK unemployment estimates are being downgraded. 1 in 8 workers are still being paid to stay at home according to the ONS while the Treasury’s job retention scheme ends in two months’ time.
Despite all this upheaval and continuing economic and health concerns, I have been struck by the single-minded determination of entrepreneurs to create new businesses. 315,339 companies were formed in the March-July period in the UK, 4.5% more than in the same period last year, according to the Centre for Entrepreneurs.
It is my belief that the UK economy has shown its ideally placed to take full advantage of fundamental shifts in business behaviour, namely the acceleration in digital transformation and innovations in healthcare.
The COVID-19 pandemic demonstrates that we should never underestimate our collective ingenuity and resilience. It is a constant source of surprise to me and, has been shown at so many other times in human history, our greatest collective strength.