Can the economy survive a second lockdown?

    24 September 2020

    Does anyone really believe that it will stop with the relatively light measures announced on Tuesday? Already, the government is reported to be drawing up plans for a two week mini-lockdown for sometime in October. And if that doesn’t lead to falling new infection rates, or if rates rebound as soon as the restrictions are lifted? The government has signalled clearly that it is now following a policy of outright suppression of Covid 19. There’s no more talk of ‘squashing the sombrero’. The government is going to try to throw the sombrero beneath a steam roller so that there is nothing whatsoever left of it bar a few strands of straw.

    The question now is: will there be anything left of the economy either? The drop in the FTSE this week shows that investors are coming round to think that the recovery from the lockdown might turn out to be a more drawn-out affair than they had imagined. Yet even so, markets hardly crashed, and had recovered much of their losses by Wednesday morning.   The latest flash Purchasing Managers’ Index (PMI) shows a loss of momentum since August (down to 55.7 from 59.1 in August). Yet anything above 50 denotes an expanding economy, so these figures on their own hardly portend disaster.

    So what now? The most obvious loser from this week’s changes is the hospitality industry. If you run a chain of wet-led pubs – the industry jargon for an establishment where the crowds of standing drinkers are more important to the business than a family sitting down for a meal – it could well be curtains. You will already have been trying to rebuild the business from three and a half months’ of total closure in the spring and early summer. An order to confine your customers to seating areas and to shut your doors at 10pm – and for these restrictions to last for at least six months — is going to make it extremely difficult to survive.   Your main hope to is reinvent yourself as an operator of food-led pubs, perhaps eating into the business of restaurants which have not reopened.

    The travel industry, too, now faces a desperate battle for survival. In Scotland, people have been told not to bother booking half-term holidays. The strong rebound in bookings for 2021 now looks questionable – it could too easily lead to another round of deposits having to be returned. And this time, there will be no furlough scheme to keep businesses going – only, perhaps, a far less generous successor scheme.

    But then neither the economy, nor the FTSE, is dominated by wet-led pubs or travel operators. For now, the retail industry has been spared any inconvenience other than a compulsion on staff to wear facemasks. Retail has been doing well.    DIY has shown a strong rebound. There is no reason, from anything announced so far, why this should change. But that could all-too easily change with another two-week or open-ended lockdown. For the moment, the future continues to looks bright for those companies which did very well during the first lockdown – the tech giants and anyone else whose business revolves around people doing things at home.  For any business which revolves around people getting together, it looks like uncertainty at best and, for many, prolonged misery.