Of Trump and Tariffs, Boris and Brexit, Virus and Vaccines …
In the U.S., after a day of chaos, Congress affirmed Joe Biden’s victory in the 2020 Presidential election. The 46th President of the United States will assume office on 20 January 2021.
In the U.K., after four years of confusion, the Prime Minister announced a new trade deal with the European Union. It’s a free trade deal, without tariffs or quotas, outside of the customs union, with a nautical border along the Irish Sea and a bit more fish for UK trawlers.
So ends our major concerns about 'Trump and tariffs' and 'Boris and Brexit'. Two of the main issues which have dominated our thinking around the British and wider global economy over the past four years.
Now the focus will shift to the impact of 'virus and vaccines' in the year ahead, especially around how they will impact the UK economy.
As fears for tiers increased, the announcement of the national lockdown in the U.K. came as little surprise. In our modelling we assume the shutdown will persist until the Easter weekend. Easter falls early this year. The Bank Holiday begins on 2 April. Maundy Thursday may mandate the release of severe restrictions for all. An efficient vaccine delivery plan may mean an earlier end to containment.
What does that mean for the UK economy in 2021?
In December, the consensus forecast was for GDP growth of 5.5% in the current year. The highest estimates hit 8%. The lowest around 1.5%. As a result of the lockdown, most analysts would expect as much as 2% to be shaved from earlier forecasts. We still expect possible growth of around 5% across the year overall, despite this setback in Q1.
The unemployment rate is expected to surpass 5% by the end of 2020. The extension of the furlough scheme will mitigate the job losses in the short term. Just under two million people are due to be officially unemployed by the end year. Just over two million are supported by the furlough scheme.
Unemployment is expected to peak in the second quarter of 2021.This means that it will sit at around 2.5 million by the end of the year with a u-rate of approximately 7%.
Government borrowing in the current financial year to March is expected to be around £400 billion. Borrowing in the next financial year is expected to fall to around £200 billion. Who would have thought, borrowing at around 10% of GDP would appear to be a significant improvement?
No problems with inflation in the short term. CPI is expected to remain within the target 2% for the year ahead.
No fears for funding or interest costs. The Bank of England will continue to step up as the lender of last resort. The process of monetary financing of the fiscal deficit will continue.
No real change in interest rates, no real increases in taxation. Rishi Sunak will continue to test the waters for a wealth tax.
Sector losers during the pandemic have been 'non-essential' retail, travel and tourism as well as food and accommodation, leisure and entertainment. The property sector has been hit by the challenges in retail and commercial property.
For these sectors the challenges will persist in the first half of the year. There will be some prospect of a bounce back in latter part of the year
Winners in the shutdown have been online retail and logistics. The volume of online food sales has doubled. The share of online retail has increased to over 30%. The challenge of last mile delivery has accelerated the returns in warehousing and distribution.
Digital acceleration has been the modus operandi for all businesses. The user experience and user journey have been so important. 'Parcel experience' has become an important paradigm.
Streaming has delivered exceptional growth for Netflix, Disney, Amazon, Apple, HBO, and CBS. Home action and WFH has accelerated the share price for Zoom and Peloton. Into 2021 and the digital trends will become more entrenched. The problems for traditional retail will persist.
Financial markets have performed well in 2020. The real surprise has been the bitcoin boom. Now testing the $40,000-dollar level … a snip at $5,000 in March last year, the Gold bulls look on in wonder …
Where next for cryptos - well that’s another story.
About John Ashcroft
We are delighted to be partnering with Dr John Ashcroft to bring you the latest in a series of quarterly briefings and monthly updates on the UK and world economy. We will be looking at markets, growth and inflation and what this all means for the North West, the UK and globally.
Dr John Ashcroft PhD, BSC.(Econ) FRSA CBIM is author of The Saturday Economist, a weekly update on the UK and World Economy and former Chief Executive of pro-manchester. John will be collaborating with us to provide insight on economic and sector specific issues facing our clients and contacts.