Economic & Market Outlook – January 2021
Happy New Year !!!
Coronavirus
2021 has started with another National Lockdown and the accelerated roll out of the Covid-19 Vaccine. We currently have the fastest roll out of this vaccine with the US close behind, although Europe are still yet to approve Oxford-AstraZeneca vaccine and therefore their distribution is much slower. Consequently, there is a great boost to the UK economy and gives us increased confidence of some normality this year.
The UK is currently focusing on vaccinating their targeted group of 70 year olds +; this makes up 13% of our population but has contributed to over 80% of Covid-19 deaths (data as 12/01/2021). The Government plan on completely vaccinating this age group by mid February and for ages 50-69 to be vaccinated by the end of April. The US is following a similar structure.
Whilst the current National Lockdown has created further implications for the recovery of stock markets in 2021, the outlook is still positive with the vaccine, continuation of financial help from the government and the likelihood of interest rates remaining low.
The US
In the US we have seen the Democrats take control of the Senate and will now allow them to set the agenda. They will already be looking ahead to the mid term elections in 2022 with the plan to gain more seats in the Senate. It is therefore reasonable to suggest that tax rates will not change significantly until at least after these elections. They will concentrate on the US economy recovery by providing continuing fiscal stimulus. US inflation is currently 1.4% with unemployment at 6.7%. The Federal Reserve (FED) has targets of 2% for inflation and 4% for unemployment before they will look at reducing Quantitative Easing and increasing interest rates.
Brexit
30th December saw a Brexit deal approved and 2021 commenced with a bang. The FTSE100 rose and Sterling had a bit of a bounce. The deal gives the UK and the EU a zero tariff and zero quota, access to each other’s markets and allows us to co-operate with our biggest trading partner. It is worth noting though that the Brexit process is still not complete, and the EU Parliament needs to make this official which is expected to happen by the end of February. Furthermore, there are many areas where the agreement needs to be developed and / or put into practice.
Summary
The combination of the roll out of the Covid-19 vaccines, Brexit deal and US election have all added confidence to Global stock markets. With the likelihood of some sort of normality in the second half of the year, we could see households and businesses start to spend the excess money balances accumulated in 2020. This means that consumption, investment and employment are all likely to recover at a much more rapid pace than after a typical recession, and therefore hopefully generating an equally strong economic recovery.
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