A second wave of infections was always going to happen following the lifting of the national lockdown, given the absence of a vaccine or an effective system of testing. Now, to avoid infections and deaths spiralling, but also to shelter the economy, a semi-lockdown approach has been adopted: a “stitch in time to save nine” in the prime minister’s words.
But the measures will deliver another heavy blow to the already weakened services sectors. A 10pm curfew might seem harmless, but that’s probably the very earliest any young person would be starting their night out, while the work-from-home edict takes us back to square one in terms of the impact on the retail, leisure and transport industries. Whitbread and SSP Group are just two examples of companies planning to cut thousands of jobs. Compass has been battered by lockdown too and has had to rethink plans for the future (see page 52).
It seems certain that for at least another year we will be at the mercy of the virus and new outbreaks. The longer restrictions are in place the greater the chance of businesses going bust. They may be swamped by their debts while new learned behaviours – such as hoarding cash rather than spending, online catch-ups replacing business trips – and high levels of unemployment will kill off badly weakened companies.
And while continuing government support to cushion the economy and protect jobs is essential – the impact of the pandemic thus far would have been many times greater had the economy been left to save itself – governments will surely at some point pay more attention to where the support is being directed in the event of a drawn-out pandemic. Job retention schemes across the OECD economies were supporting 50m roles during the first wave of lockdowns, which must be unsustainable. The longer the crisis continues the more focus there will be on which jobs, businesses and sectors really merit support through demonstrable long-term viability, and more conditional interventions such as the ending of rail franchising this week.
The fact is disruption is becoming the norm – whether from Covid-19, climate change, political instability or social inequality – and investors who have been used to easy grazing in a peaceful market must factor this into their choices. Yes, tech has been a shining star this year, and not just in the US – in Europe its index weighting now equals that of banks, when just 10 years ago the latter was more than five times the size of the former – but we cannot live on tech alone. Investors need to be looking for signs of long-term viability whether that’s through strong balance sheets or tough decision-making – something that fund manager Carl Stick approves of as he explains to Mary McDougall on page 42 – while companies must face the fact that if they cannot adapt and thrive, they will be yesterday’s forgotten failures.
