The World In A Week – Interim Update7th May 2020
A week that has been punctuated by uncertainty and conjecture. As we get to the end of the second three-week lockdown period in the UK, headlines are full of rumour. No one knows what the effect of easing the restrictions will be, and as we have written previously, fear is one of the biggest dangers to the economy.
The economics of ending a lockdown seem to depend on fear and confidence. Consumers need to have assurance around the security of their jobs and feel safe about their risks to their health. If that scenario occurs, then there is the likelihood of consumers spending that short-term pent-up demand.
The balancing act is all about the timing. Too soon and the conditions mentioned above will fail and the potential short-term economic bounce will be snuffed out. That is the tightrope politicians are walking; managing the populations’ expectations, with as light touch as possible around social control, while knowing the longer the delay, means the longer the overall economic recovery.
Meanwhile, the Bank of England has left policy unchanged at their meeting yesterday. Whilst the committee voted unanimously to maintain interest rates at 0.1%, there was also a majority vote of 7-2 to continue with the programme of purchasing £200 billion of UK government bonds and non-financial investment grade corporate bonds. The two members who dissented were actually looking to increase the purchases by an additional £100 billion. A reminder that central bank policy around the world is still firmly in supportive mode.