Vaccine Progress Provides Bright Spot In Otherwise Bleak Economic Outlook


This week we got the unwelcome, although unsurprising, news that the UK economy contracted again following the imposition of another lockdown in November. While there are sections of the media keen to blame the restrictions alone for the contraction, a drop in GDP was inevitable as consumer confidence has been damaged by the resurgence of coronavirus cases. A rare bright spot showed up this week with the launch of the vaccination dashboard. The number of people getting inoculated daily is ramping up significantly and is on track to meet the governments ambitious target, showing just what’s possible when you don’t put Dido Harding in charge.

Elsewhere Joe Biden announced his stimulus plan for the US economy, a huge $1.9trn package with much needed support for states and vaccinations, and a few liberal goals like raising the minimum wage thrown in. While passing the bill won’t be straight forward, bundling it with the stimulus checks is smart politics. There are few things that currently unite Americans, but free money is one of them; voting against it will be risky.



UK Flag thumbnail blogGDP fell by 2.6 per cent in November as the second coronavirus lockdown took effect. The reduction in economic output was less severe than predicted but means the UK is facing a W-shaped recovery. The monthly figure for October was growth of 0.6 per cent and as the lockdown was followed by more restrictions in December, GDP for the last quarter of the year is likely to contract. The latest contraction sees the UK economy around 8.5 per cent smaller than before the Covid-19 outbreak.

The latest lockdown, introduced at the beginning of the month to try and stop the spread of the new variant of the virus, will be in place until 16th February at the earliest, and potentially will not be lifted until 31st March. This means further contraction is on the cards pushing the UK back into recession for the second time in 12 months.



Corporate bond yields continue their relentless move lower despite the fresh rush for cash to help companies through the latest coronavirus lockdown. This week Hungarian low-cost airline Wizz Air raised €500m through a three-year bond paying 1.35 per cent – despite a credit rating of BBB. The airline reports passenger numbers in December were 80 per cent down on the year before, and it currently has a negative outlook from two ratings agencies.

Companies with higher ratings continue to benefit from borrowing costs at record low levels. This week German energy company Eon issued a €600m bond paying 0.1 per cent, while Swiss engineering firm ABB borrowed €800m in a 9-year bond with zero interest. The search for yield (or returns in the case of ABB) shows no sign of curtailing investor demand despite a sharp increase in the number of defaults. Figures from IHS Markit this week show the number of defaults in 2020 was the highest since 2009 during the later stages of the financial crisis.



Rent collection in 2020 shows the contrasting fortunes of the UK’s listed commercial property landlords. Companies with substantial exposure to retail properties, such as British Land and Land Securities, have seen their rent income drop significantly as coronavirus restrictions have curbed trading for large parts of the year.

This week, British Land said it collected only 72 per cent of rent due in December. The figure drops to just 46 per cent when looking just at its retail properties. Land Securities has similar figures, with 65 per cent of rent paid but 36 per cent of retailers paying December’s rent. This is in stark contrast to warehouse and distribution specialist like Segro and Tritax Big Box Reit. Segro’s update this week shows 88 per cent of this quarter’s rent has been paid (higher than 12 months ago), with 98 per cent of all 2020 rent paid while Tritax Big Box Reit has seen its underlying assets increase by around 8 per cent over 2020.


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