Nevertheless, right now we are all in need of victories wherever we can find them. And although there are lingering concerns about the speed at which the vaccine has been approved, it is – as Megan Boxall writes – a landmark not just in the battle against Covid-19, but the longer war against many other diseases, too.
Yet even if it is starting to look as though we may be close to controlling the virus, when it comes to the economic battle it feels like only the end of the beginning. The latest forecasts from the Office for Budgetary Responsibility (OBR) show that UK GDP is expected to fall 11.3 per cent in 2020, the largest fall in 300 years, when a little ice age caused an economic ice age.
A dig into the statistics unsurprisingly shows that the bulk of the fall comes from a major contraction in private consumption – a lack of shopping, eating out and going on holiday. The flipside of the fall in consumption in 2020 is that many have been forced into saving, and indeed at 28 per cent the UK saving rate rose to its highest ever level in the second quarter of the year. But the OBR expects this to moderate to a more normal level as restrictions ease and unshackled households splash the cash again – although with unemployment expected to double to around 8 per cent next year in the OBR’s central forecast, it is likely that they will not be emptying their bank accounts entirely, lest a rainy day come.
Even if consumption resumes its seemingly ever-upwards trajectory, where they will be spending this cash is another matter altogether. If the OBR’s forecast that the government’s Bounce Back loan scheme will lose £29bn is correct, it is small business that will bear the brunt of the contraction – the ground has been set for an economic survival of the fittest where fewer, larger companies prosper. And even among larger companies there will be winners and losers, as this week’s collapse of Debenhams and Arcadia, slow to adapt to a world of changing shopping habits, demonstrates.
In short, it might pay to be wary of claims that we are now about to see a sustained shift into beaten-up value shares. Such has been the economic pain that even the rising tide brought about by positive vaccine news will not – as we have already seen – lift all boats. So, pick your value winners carefully – there is still a long fight ahead.
