Markets continued to push higher during the final quarter of 2020 as positive vaccine trials were announced and investors started to believe that the vaccinations in 2021 would return the global economy back to something approaching normality.
A global economic recovery is now anticipated for 2021. The number of companies seeing increases in forecast profits is up relative to those seeing downward revisions is high relative to history.
However, there are some significant caveats.
Firstly, there is a risk that new COVID-19 variants may require the reformulation of existing vaccines to ensure good efficacy which may reduce the speed and scale of the recovery.
Secondly, it is argued that measures such as austerity and interest rate rises were brought in too swiftly following the global financial crisis of 2008/9 and these errors impaired the subsequent recovery. The same mistake must not be repeated.
Thirdly, if increased inflation expectations results in higher interest rates, this could have the effect of reducing economic growth.
The announcement of a new more transmissible UK COVID-19 variant has induced harsher lockdowns and will produce an even larger budget deficit than previously forecast. However, it is possible that the UK continues to roll out vaccinations more swiftly than other countries, thus boosting confidence in a return to ‘normal’. We may also discover that the post-Brexit arrangements with Europe are manageable and the negative short-term effects of increased paperwork may diminish as an area of concern.
We hope that given Brexit clarity and a stable, relatively business-friendly government, the outlook for the UK continues to improve.