Lockdown - Reflections at the end of week 20

The 20th week of lockdown has brought with it a number of developments within themes with which we have become very familiar:

  • The Bank of England’s monetary policy committee has revised its forecast to that of a lesser downturn in 2020, but with the good, or at least less bad, news being mitigated by their finding evidence of a slower recovery than their previous forecasts. Apart from anything else, this is another illustration of just how difficult economic forecasting is in the current circumstances;
  • One factor which makes economic forecasting difficult is the rise in infection rates within the UK and in parts of Europe which, Brexit notwithstanding, remains the UK’s principal trading region, and the unknown extent to which they will bring economic restrictions in their wake
  • It remains to be seen whether the jump in taking holidays overseas, evidenced this week by Easyjet increasing flights, will have a significant effect on infection rates;
  • In spite of the increase in overseas holidays, there has been further evidence that the travel industry has been changed permanently by the Covid crisis. Last October, Hays bought out a substantial part of Thomas Cook’s high street business, but is now having to make significant job cuts itself. This week, Tui also announced the closure of one third of its high street shops. This, I suspect, will not just be about cancelled holidays, but rather is another step in a rapid shift towards booking non-bespoke travel online rather than face to face;
  • Elsewhere in the leisure sector, the pain being felt was illustrated by DW entering into administration, and the battered hospitality sector having to take on board suggestions that leisure venues may be closed in September to balance the risks created by the social contact that will result from a full return to school;
  • The government is facing yet another problem of having purchased PPE which is not fit for purpose;
  • And then there are the US election and Brexit to add into the mix.

For all that and the significant personal toll which the Covid crisis has had on many people, we have, by and large, learned to live with it and have adapted to how things are now. The difficult part is understanding a future where political pronouncements of normality by Christmas, which felt optimistic at the time, are followed by warnings from the same source of a second wave which, regrettably seem more founded in reality. I was once told by a resident of the east coast of Scotland that the area he lived in only had two seasons, being winter and July. The effects of a warm day in Aberdeen with a single bar appearing to drive upwards of 70 new cases of infection are a salutary reminder of the continuing and looming presence of the virus.

In spite of its difficulties, it remains vital for businesses to take the time now to plan for the future. A number of trends seem clear, with IT playing a growing part in the lives of businesses, those who work in them and consumers alike, flexible working becoming much more of a norm, the high street under pressure and fixed overheads being reduced to reflect more agile working. However, as an illustration of how difficult prediction of the future can be, think of the housing market and related housebuilding and retail sales activities. We are currently seeing a surge in the domestic housing market. Reasons for this include a three month period in which the market was inactive, the stamp duty holiday and, amongst those who can afford it, spare cash being invested in property to let out. I also wonder if some of it is being driven by concern about ongoing mortgage availability against a background of growing job losses. Historically, sharp rises in unemployment have hit housing markets hard, but, in these peculiar times, there is no certainty as how the market will react, particularly given the continuing issue of under provision of housing stock. It will be interesting to see how lenders and developers in particular tackle this conundrum in the short to medium term.

Enjoy the weekend weather and, those of you taking advantage of it, your subsidised meal out.

Ian Waine leads Prettys’ Corporate Services Team and has advised on a large number of corporate recovery and corporate restructuring cases over the last 30 years. He can be contacted on 07979 498817 or iwaine@prettys.co.uk.

Ian Waine
Senior Partner