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Talking Ourselves Out of Recession


By Anthony Hughes, Associate Partner

The UK Government has laid out five conditions that need to be met before any semblance of normality can return. Whilst it has not yet laid out the particulars, there finally seems to be a faint glimmer of light at the end of the ‘lockdown tunnel’. Naturally people are already starting to speculate about what life will look like post Covid-19.

Today the Bank of England warned that the coronavirus pandemic will push the UK economy into its deepest recession on record, with the economy on course to shrink 14% this year, based on the lockdown being relaxed in June. The good news, if we can call it that, is that Andrew Bailey, Governor of the Bank of England, said he expected any permanent damage from the pandemic to be "relatively small" with the economy likely to recover "much more rapidly than the pull back from the global financial crisis." 

The emergency measures and loss of tax revenues mean that the Treasury is taking a massive hit. In the private sector, the scale of this task varies depending who you talk to and what sector they are in. Some segments of the high street, leisure and hospitality sectors have been absolutely decimated, whilst others, such as e-commerce and remote technologies continue to thrive and even grow. Indeed, some commentators believe that Covid-19 has merely accelerated the ‘mega-trends’ that were already upon us and that we are now living through the ‘data revolution’ or ‘second technological revolution’.

Up to now saving lives and protecting the NHS has been the absolute priority. However, as we pass the peak, like the Bank of England, our attention will turn to what state the pandemic and lockdown leave the country in economically.

Prior to the pandemic, the financial markets had been on an historic bull run, although there seemed to be some debate between those commentators who thought that we were in for some form of correction anyway and those who contend that the fundamentals remain(ed) strong.  

I have been on numerous webinars and in conversation with investors of all kinds in the last few weeks, many of whom seem to be curiously up-beat (about the current economic situation). They were saying things like: the banks are well capitalised and have been stress tested; many investors still have plenty of cash and whilst valuations are all over the place (mostly down), they will surely rise again in the medium to long term, and even, the recovery will begin in Q4 this year. Whether this is hubris or a genuine belief that things will be ‘ok’ I am unsure, but it got me thinking – I have heard of ‘talking ourselves into a recession’ – is it possible to talk ourselves out of one? (Or at least reduce the duration).

I don’t think anyone is under the illusion that the next few years are going to be a walk in the proverbial park economically, but, if these investors are to be believed, there are areas of the economy that appear to be poised for growth despite the crisis. If the Government, investors and commentators can all make the right noises about supporting the transition or reconfiguration of our economy to develop in these areas of growth, maybe we could avoid the worst of it.

Either way, constructive and credible communication about the way forward will be a crucial element in avoiding the worst of the CV-19 economic crisis.