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As the human cost of the coronavirus pandemic reaches truly shocking proportions, the second part of the crisis is also starting to become apparent - the cost to the economy.
According to a forecast by the UK’s tax and spending watchdog, the Office for Budget Responsibility (OBR), the UK economy could shrink by a record 35% by June.
The OBR said a three month lockdown, followed by three more months of partial lockdown, would trigger a 35.1% decline in the UK’s economy. And that, as OBR chair Robert Chote said, would be the largest fall “in living memory”.
That sort of fall in the economy would, if the OBR’s forecasts prove to be right, see the overall economy contract by 12.8% this year. A fall is inevitable. How much of a fall we see depends on how long the lockdown continues, just as much as how quickly it bounces back.
In the first three months of this year, before the pandemic took hold, the UK economy saw growth of 0.2%. The expectation, for now, is still that it will return to its pre-crisis growth trend by the end of 2020.
The OBR estimates that three months of lockdown will push the UK’s borrowing to around £273 billion in the current financial year. That is equivalent to 14% of our gross domestic product (GDP) and would be the largest national debt we have owed since World War Two.
Looking at the figures and forecasts, the scale of the financial impact is not surprising. The International Monetary Fund has also warned of the size of the potential problem; saying the crisis would push the UK into its deepest slump for a century. It expects the UK economy to shrink by 6.5% in 2020.
But of course, the UK is far from alone in this. Overall the IMF forecasts that the global economy will shrink by 3%. And as we also know, the inter-connectedness of the world today makes each country’s economic slide and recovery of great importance to each other as well.
It is a difficult balancing act and one which has no stepping-off point in sight. How to ease the lockdown in the UK, when to ease it and how both the British public and the economy respond will have to wait to be seen.
Difficult questions will be the Chancellor’s and the government’s task to try to answer as best they can in the weeks and months to come. What is certain is that there are undoubtedly more questions than there are answers at the present time.
That was evident too from our latest Investment Outlook webcast, in which our investment director Tom Stevenson, sets out his views on the year ahead, and answered the questions you have. Ahead of filming we were inundated with questions; not surprising given the uncertainty that surrounds us all.
Tom answered as many as possible during the webcast as well as in a special Outlook edition of Ed Monk’s weekly MoneyTalk Radio podcast. Topics ranged from safe havens to spotting opportunities, whether it was best to ‘sit on your hands’ or strike now, go all-in or drip-feed and where specific opportunities might lie.
Tom attempted to calm frazzled nerves, temper irrational exuberance and offer some insight and guidance on the best way to play the markets and stay invested in the current crisis, which was no mean feat.
If you have yet to watch the latest webcast or listen to the pod you can do that here.
And then don’t forget to join us again in three months’ time for Tom’s next Investment Outlook and your chance to put your own questions to him then.
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
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