Page 5 - ISQ UK Aprl 2020

INVESTMENT STRATEGY QUARTERLY

The UK Market and Economy

Chris Bailey, European Strategist, Raymond
James Investment Services Ltd.

‘‘All things that we ordained festival
Turn from their office to black funeral;
Our instruments to melancholy bells,
Our wedding cheer to a sad burial feast;

Our solemn hymns to sullen dirges change;
Our bridal flowers serve for a buried corse;
And all things change them to the contrary’

- William Shakespeare

The earliest documented transmission of COVID-19 within the The first objective has to be centred on virus control and the
U.K. may only have appeared on the 28th of February of this year, related subject of lock-down duration. Financial market volatility
but by the first of April there were just shy of thirty thousand cases during the first quarter of the year has tentatively anticipated a
and very sadly over two thousand, three hundred people had recessionary lock-down in the western world (including the U.K.)
died and the country had been on lock-down for over a week. that stretches deep into May. Drawing on the experiences of a
Such is the rapid impact of a true exogenous shock such as a number of countries in East Asia on virus suppression and control
global pandemic on an open economy, which has a local equity measures this should give the U.K. government time to tame the
index with a global earnings base. outbreak, albeit that closing this door will only mean opening the
equally challenging objective of ‘restarting the economy’, a period
Many of the events of the last four or five weeks feel highly unusual of time which will require the slow but steady removal of
to classic British notions of freedom. However the solid government support mechanisms in order not to provide
institutional response within the U.K. has also been striking. Aside disincentives for private business to take risks (and hence create
from the gargantuan efforts on the healthcare front line, economy- jobs and ultimately wealth).
impacting actions including the Bank of England restarting
quantitative easing and reducing interest rates to their lowest One highly likely casualty of this crisis will be a speedy resolution
level for over 325 years, and a raft of cheap corporate lending and of the required detailed Brexit trade discussions to finalise all day-
direct worker assistance initiatives announced by the government, to-day aspects of the U.K.’s exit from the European Union. Expect
have surprised many both in terms of their size and speed of this to be postponed to 2021. Similarly many of the specific
announcement. initiatives anticipated by regions geographically far removed
from London will now only practically be considered in a backdrop
A big response was clearly necessary. The decision to effectively where COVID-19 has ceased to be a significant national (and
lock-down large swathes of an economy is a decision that should international) concern. The highly open nature of the U.K.
not be taken lightly, albeit influenced from learnings sourced economy and global earnings backdrop of the U.K. equity market,
from both Asia and Continental Europe, about seemingly the best will mean that real advances in both the Pound and the stock
way to minimise the medium and longer-term impacts of a market will only come with a period of resurgent international
pandemic. The shorter-term impact of effectively nationalising a calmness about COVID-19 - and economic growth rates.
material element of the national wage bill will show up in both
the central bank and fiscal deficit balance sheets for years to However, what is very clear already is that a number of domestic
come, but as a measure to maintain a degree of consumer and themes developed in recent weeks will be deeply influential
corporate structure is entirely justifiable. throughout the early part of the 2020s within the U.K. economy.

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