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17 August 2020

On the Up and Up?

Ben Staniforth, Investment Analyst, Redmayne Bentley

The United Kingdom is officially in recession. The UK’s lacklustre initial response to the COVID-19 pandemic had an outsized effect on its economy relative to its G7 peers. The group of developed nations recorded an average GDP decline of -12.3% during the second quarter of 2020, with Japan faring best at -7.6%, owing to its swift and sensible response, helping to protect its at-risk, ageing population. The UK, however, recorded a 21% decline, dwarfing its peers as the lockdown hit every sector of the economy.

Consumer spending, however, continues to show signs of a recovery as non-essential purchases improved somewhat from May’s -36.9% drop to -22.3% during the month of June. This was bolstered by the gradual re-opening of retail outlets, which have endured significant declines in footfall since the start of lockdown. While spending in retail has fallen, with the exception of essential supermarket purchases, online transactions have soared, accelerating the secular shift to online shopping. The government’s furlough scheme has meant that unemployment and wages, for the most part, have remained relatively stable and with the scheme being extended until October, consumers are likely to tentatively return to their usual spending habits, for now at least.

Brexit, which has taken a backfoot since the pandemic began, has shown small signs of progress in the past few months, despite a warning from the EU’s chief negotiator Michel Barnier that a deal was ‘unlikely’ by the end of the year. Small concessions from both sides have shown that a deal in the future is possible but large issues, namely fishing, still remain. The UK’s progress on trade deals with other nations, which include Japan and the US, have also ground to a halt, seemingly during the final leg of negotiations. The months leading up to Christmas, then, could provide some potential trade breakthroughs, however, it seems as though we are going to be holding our breath for some time before anything is ratified.

Please note that investments and income arising from them can fall as well as rise in value. Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
On the Up and Up?
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