As the UK marks the anniversary of our first lockdown, we look back at the damage done, the lessons learnt and why we are hopeful for 2021.
The frontpages reflect the sombre realisation that 126,000 of our compatriots have succumbed to this awful disease. Up and down the country, there are households shattered with grief and a longing for those taken. The loss of life is the most lasting consequence of the pandemic and will forever scar these shores.
The UK government’s handling of the crisis will be debated for years to come. The very thought of shining a light on those early months has become a political hot potato. When asked what we could have done differently, the Prime Minister hinted at how little was known about the disease in March 2020. As a technology-enabled society of tweeters, we find the lack of information a difficult excuse to accept, particularly from those in charge.
While a lack of knowledge speaks to the speed with which the government bought in various measures, it fails to address the structural under investment in social care, NHS staffing and government procurement infrastructure. These three areas meaningfully impacted the effectiveness of the government’s response and is not something that should be brushed under the carpet.
The UK’s furlough scheme, by far the costliest policy instituted by any non-war time government, has been a lifeline for nine million families. The speed with which it was put in place helped prevent an apocalyptic increase in unemployment, credit defaults and human misery. While the Chancellor did think outside the box with the scheme, its true success will be judged by how many workers return to work when the scheme ends. It remains unclear whether it has reduced to the number of unemployed created by this crisis, or simply delayed it.
This brings us to the sectors at the coal face of the lockdown economy – leisure and retail. These relatively low margin businesses are the beating heart of a service sector economy such as ours. While many high street brands have struggled for years with growing online competition, many have failed to change how they operate. Business rates need structural change as a post-covid high street looks far less lucrative for small businesses.
The NHS, despite its staffing issues, has been a beacon of resilience. The love and compassion with which healthcare workers cared for the nation will be immortalised in our hearts forever. The wide scale availability of vaccines, the hard work of healthcare workers and countless volunteers has for the first time given us a chance of permanently exiting lockdown. While countless hurdles stand in the way of a return to normal, we believe that the UK is well placed to start that journey.
Rising bond yields and commodity prices confirm investor expectations of a rapid acceleration in economic growth. An economic revival will drive an earnings recovery in the cyclical parts of the equity market. We anticipate earnings revisions for these sectors will drive a re-rating of stock prices. We expect value (or cyclical) stocks to continue to outperform in 2021 and have structured our client portfolios to take advantage to this backdrop.