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Investment market update: February 2021

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A year after lockdowns around the world began, Covid-19 continues to affect economies and investment markets. While the volatility experienced almost 12 months ago may have calmed, uncertainty remains and it’s important for investors to focus on their long-term plan.

In February, Kristalina Georgieva, managing director of the International Monetary Fund (IMF), called on leaders of the G20 to deliver strong policies to support the global economic recovery. She set out three points to achieve this:

  1. Speed up vaccinations
  2. Provide more support to households and businesses
  3. Provide additional support for the poorest countries.

With millions now vaccinated, there is light at the end of the tunnel. However, Covid-19 continues to present risks and there are concerns of new waves emerging when restrictions ease.

UK

Official figures from the Office for National Statistics show UK GDP suffered its worst annual slip on record, falling 9.9% in 2020. However, we avoided a double-dip recession following growth of 1% in the final quarter. After introducing a third national lockdown at the end of 2020, it’s uncertain if the growth will continue into 2021.

Highlighting the challenging economic circumstances faced by the UK is a recent Bank of England announcement. The central bank opted to keep interest rates where they are, at a historic low of 0.1%, but said banks should prepare. Negative rates aren’t guaranteed but consideration suggests the bank is preparing further hardship. It’s a move that would have a significant impact on savers.

Another key indicator of the economy is unemployment figures. Official statistics show the UK jobless rate was 5.1% in the final three months of 2020. This compares to 3.8% at the end of 2019 and represents a five-year high. Crucially, the furlough scheme is providing some cushioning. Provisional HMRC estimates show there were 4.7 million jobs furloughed at the end of January.

Despite supermarkets being among the “winners” of lockdown, Asda has announced a major shake-up to operations that will put thousands of back-office jobs at risk in a further blow to the unemployment figures.

There are some positive signs for the retail sector, however. According to figures from data company Springboard, footfall is rising. In the last week of February, the company reported a 10.5% increase in high street footfall, as well as a 4.5% and 1.2% increase in shopping centres and retails parks, respectively. The reopening of non-essential shops is still several weeks away but the increase suggests pent-up demand that could deliver a much-needed boost to the sector.

The pandemic has overshadowed Brexit, but two months after the UK left the EU, companies are reporting trade challenges. A report from the Chartered Institute of Procurement and Supply found two in three supply chain managers are experiencing delays of at least two or three days. This compares to 38% that said the same in January. It could signal that businesses will face further obstacles as markets and businesses reopen.

Europe

Statistics from Eurostat suggest the eurozone could be on track for a double-dip recession. In the final quarter of 2020, the economy shrank by 0.7%, adding to the 6.8% decrease for the whole of 2020. The dip follows many governments introducing new Covid-19 restrictions towards the end of the year.

Despite this, confidence is rising in some parts of the economic area. German business confidence beat expectations, rising to 92.4 in an index run by the Ifo Institute, a few points higher than the 90.5 forecast. The index also showed renewed confidence in the constriction, retail, and other service sectors. As the largest economy in the eurozone, this is a welcomed sign.

US

With Joe Biden’s inauguration taking place on 20 January 2021, February was his first full month in office, and it was a month of mixed signals.

The Chair of the Federal Reserve warned the US economic recovery was uneven and “far from complete”. Echoing this, the University of Michigan’s monthly consumer sentiment hit a six-month low. The results found future economic prospects are a concern for the general public. Despite this, there are positive signs. Retail sales, for example, jumped 5.3%, far stronger than the 1.1% expected, according to the Commerce Department.

There are also signs that the travel industry is picking up, although Boeing has faced another blow. The company has already endured the worst period in its history after its failings were found to be the cause of two fatal crashes, leading to its bestselling plane being grounded, which was then followed by the pandemic. Now, further questions are being asked about the safety of some of its 777 engines, leading to additional bans and stock prices falling.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

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