The end of lockdown beckons

22nd March, 2021

UK investor sentiment was boosted in February by evidence that the UK’s Covid-19 vaccination programme is progressing well: more than 20 million people had received their first jab by the end of the month. As infection rates continued to ease, Prime Minister Boris Johnson outlined the “roadmap” for the reopening of the economy in England. Non-essential shops, hairdressers, indoor leisure, and outdoor hospitality outlets are set to reopen on 12 April; further relaxations on social interaction will take place from 17 May; and the remaining restrictions are scheduled to be lifted on 21 June, although the progression to each stage will hinge on various criteria.

In response to the announcement, investors turned their attention to companies in the sectors that are likely to benefit from the end of lockdown, including leisure and travel. At the same time, the news sparked concerns that the reopening could trigger a sharp rise in inflationary pressures and the subsequent withdrawal of government and central bank support. In turn, this led to a steep increase in bond yields and a sudden dip in sentiment towards long-term growth stocks. Over February, the FTSE 100 Index rose by 1.2%, while the FTSE 250 Index climbed by 3.4%.

The British Retail Consortium (BRC) reported that UK retail sales fell during January to their lowest level since May 2020 as lockdown measures hit non-essential retailers and traditional January sales failed to materialise. The BRC hopes that pent-up savings and continued progress in the vaccine rollout programme will aid recovery amongst retailers later this year. The UK economy is “poised like a coiled spring”, according to BoE chief economist Andy Haldane, who expects recovering consumer confidence to drive a strong rebound in activity.

2020 proved to be a year of two halves for profit warnings in the UK, according to EY. While the first half saw record levels of profit warnings, they fell to below-average levels during the second half. 35% of UK quoted companies issued a warning in 2020, and 10% of companies across the FTSE 350 Index issued three or more warnings in 2020. There were 74 warnings in the travel & leisure sector, 53 in the retailing sector, and 53 in the industrial support services sector. Looking ahead, EY has warned that, despite the nascent recovery, many more businesses are expected to fail in 2021.

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