The second quarter of 2021 will perhaps go down with fonder memories than the year before. The feel-good factor has returned. This is being driven by the UK’s vaccination strategy which has led to a gradual relaxing of restrictions and re-opening of the economy.
The 12th April was the first date on the government plan when non-essential shops reopened, hair salons could take customers and pubs and restaurants with outdoor seating served meals and alcohol again. Since then, the reopening has continued on the 17th May with more easing of the restrictions on seeing friends and family.
A staggering 79.5 million vaccination have been given in the UK; 34 million people are now fully vaccinated and a further 11.9 million people have had their first vaccination and awaiting their second [1]. We are now at a stage where all nine priority groups, those most at risk, are close to being fully vaccinated, and the rest of the adult population is being invited to book their first vaccine.
Whilst the UK has stolen a march, it is now just as important that the rest of the world catches up quickly with the evolution of faster spreading variants. Globally 3.32 billion vaccines have been administered [2]. Whilst this is hugely impressive it is well below the required 15.7 billion doses
It is not all positive news though unfortunately. As the quarter ended, there were signs that a third wave was well underway in both the UK and globally with Covid cases picking up again. The key question here is how effective vaccines will be in reducing hospitalisations and deaths. The early signs in the UK are encouraging but the coming weeks and months will give us a better indication with “Freedom Day” already pushed back until 19th July.
This has meant that restrictions have started to be eased and in doing so economic growth has started to pick up. Monthly data suggests a 2.3% increase in the UK Economy in April [4], the first “re-opening month”, which compares to a 1.3% fall in activity in the first quarter. This pickup in demand is being met with supply shortages, and prices compared to a year ago are moving higher as a result.
For the first time since the summer of 2019, the inflation measured by the Consumer Price Index (CPI) is exceeding the Bank of England’s 2% target and looks likely to continue to pick up over the coming months. Even though inflation is accelerating, it is not anticipated that the Bank of England will increase interest rates; they are concentrating on ensuring that the economy rebounds strongly.
Interest rates at lows and inflation picking up creates an issue for cash saving or investment in “close” to cash. A 3% CPI, which could come in the coming months, will gradually erode the real value of any assets held in cash with interest rates at an all-time low of 0.1%.
But it is not all bad news for investors. This backdrop has been welcomed by global stock markets with most performing strongly during the quarter. The US S&P 500 closed in June at a record high and up 8.4% [5] (in sterling terms). Closer to home the FTSE 100 delivered a 5.7% [5] total return during the 3-month period.
In summary, restrictions are being eased, economies are reopening, growth is accelerating, and risk assets (stock markets) are being buoyed. This is likely to be a trend as we move into the second half of 2021 and into 2022. That being said, there are reasons to be cautious with the global vaccination programme not as far progressed. New variants have the potential to lead to further lockdowns in these countries and in doing so slowing overall global growth.
[1] https://ourworldindata.org/covid-vaccinations?country=GBR 9/7/21
[1] https://ourworldindata.org/covid-vaccinations 9/7/21
[3] https://www.worldometers.info/world-population/ 9/7/21 09:15
[4] https://www.theguardian.com/business/live/2021/jun/11/uk-gdp-economy-reopened-april-trade-oil-ftse-pound-business-live
[5] Source: Morningstar Direct (31/03/2021 to 30/06/2021)
