From alphabet soup to building blocks – how Britain will take baby steps into its post-Covid future
If there’s one industry that’s booming in these dark times, it’s economic forecasting. There’s a seemingly limitless demand for – and supply of – predictions for what impact the Coronavirus crisis will have on the UK economy. The one thing they have in common is that they are all bleak.
But economists are divided on how bad things may get, and perhaps more importantly, how long for. The more creative have come up with visual representations of their forecasts. Some predict a V-shaped path for the economy – a sharp decline followed by a rapid recovery.
Others go for a variation on this theme – a W-shaped double dip – while others predict a particularly doom-laden L-shape. Most interesting of all is the t-shaped recession envisaged by Richard Woolnough, the highly-respected M&G fund manager.
Economic forecasting is hard at the best of times. And these are far from the best of times. The COVID-19 pandemic presents a once-in-a-generation challenge, both to public health and to the health of the economy, so we should cut forecasters some slack for producing an “alphabet soup” of different shaped recessions.
The first hard data to capture the economic impact of the Coronavirus, March’s Flash UK Composite PMI, paints a sobering picture. It found that the economy has started contracting at the fastest rate seen since the monthly survey began, more than 20 years ago. The report’s authors estimate that economic output shrank by between 1.5% and 2% in the first quarter of the year and that this figure will be “dwarfed” by the decline expected in the second quarter as the UK remains in lockdown.
For comparison, at the height of the Global Financial Crisis in 2008-9, the UK economy shrank by 2.1% in a single quarter. All the signs are that that decline will look like a summer garden party compared to what the UK has coming down the track. And yet there are reasons to be positive about the months that lie ahead. The first is that the recovery, when it comes, is likely to be as dramatic as the downturn.
Unlike a conventional recession, which is typically the product of a complex and interlinked series of events, this slowdown has a single, proximate cause – the immediate, Government-ordered shutdown of the economy.
While the exact route out of the public health crisis is still unclear, there will come a day when the social distancing restrictions will be lifted. Just as the Government ordered the shuttering of the economy, so it will lift it.
Clearly, from the minute people are no longer forced to stay home, growth and investor sentiment will come rocketing back. Property will be front and centre of that recovery. As the most enduring and popular asset class of all, property – especially residential property – is likely to rebound better than most.
Inevitably there will be a painful hangover from the current shutdown. At the very least we should expect a raft of legal disputes between developers and contractors about who should carry the can for delays to projects that are already in the construction phase. And for those projects that are put on ice while still in the planning phase, there could be question marks about the availability of finance as the mainstream lenders retrench.
That’s why at Atelier Capital Partners we are doing our bit to keep finance flowing, even in the current uncertain environment. We continue to work in close partnership with the broker community and are still writing deals for a range of SME developers and property companies.
We might all be working remotely, but our experienced team has only changed where we work, not how we work.
We have access to deep reserves of liquidity and we’re focusing on doing what we do best-providing vital finance to ensure that when the bounce back comes, and it will come back, our clients are ready, willing and funded.