Client Update - Coronavirus - 15th May 2020

In the UK, Prime Minister Boris Johnson unveiled a conditional roadmap for reopening the UK economy, which sparked considerable confusion and debate among the public who watched his television performance on Sunday and Monday night and were left with a lack of necessary detail.

The government will continue to be “guided by the science” and specifically the infection rate of the virus – the R. The new “Covid alert system” – a scale of 1 to 5, where 1 would imply the virus is no longer present and 5 would represent the NHS being overwhelmed, will be used to decide how quickly England will be released out of lockdown. With the UK apparently between 4 and 3 on the scale, the government made small changes to the lockdown, allowing for some movement and leisure activities and setting out a roadmap for further easing at the beginning of June depending on the data at the time. In England we are now meant to “stay alert” rather than “stay home”, although this has proved somewhat confusing when other devolved governments in Wales and Scotland chose not to amend their messaging.

There will be further relaxations in restrictions, all being well, in early July. Between now and the start of June we will need to see significant reductions in the number of new cases as well as progress being made on the contact tracing ‘app’ being trialled (apparently without much success so far) so that further reopening can go ahead with a robust tracing and testing system in place. The government also confirmed that the furlough scheme for workers would be extended for a further four months. The scheme, which pays 80% of a worker’s salary up to £2500/month has seen huge take up from UK employers, with around 7.5 million workers on the scheme, costing the government £14 billion a month. This represents 29% of the entire UK workforce. If you add in public sector workers, it means that currently 49% of the entire workforce is being paid by the state. From August the government will ask employers to make additional contributions in exchange for allowing furloughed workers to go back to work on a part time basis – although this detail has not yet been announced.

This week, US policymakers have weighed the next stage of stimulus to bolster the faltering economy, with Federal Reserve chairman Jerome Powell warning that the economic path ahead is still highly uncertain with significant downside risks. To avoid a prolonged recession and weak recovery, Powell said “additional policy measures” might be needed. Powell’s warning came as the latest figures show that more than 2.9 million workers applied for unemployment benefits last week, taking the total count to 36.5 million applications in two months.

US House Democrats have proposed another $3 trillion Covid-19 fiscal stimulus package, which if passed would stand as the largest relief package in history - dwarfing the $2 trillion stimulus measure enacted in March. While the legislation is expected to be voted on this week, Republicans have already dismissed the package, stating that another round of emergency funding is not yet needed.

The fine balance between public health risks from COVID-19 and the economic impact of containment measures was further illustrated this week in the US with Dr. Anthony Fauci, head of the National Institute of Allergy and Infectious Diseases, warning on the “serious consequences” of opening up the US economy before evidence of case growth having peaked in certain states. He argued in testimony to Congress that the risk of setting back the economy through further outbreaks would increase if states failed to follow guidelines for re-opening, and that a ‘second wave’ of the virus was conceivable by the autumn. The decisions on re-opening timelines in the US are made by state governments, though there has been plenty of pressure from the White House to accelerate the end of “stay at home” policies. Indeed, by the end of the month, 95% of the US population will no longer be under a state lockdown. Meanwhile, the Federal Reserve’s James Bullard warned of “business failures on a grand scale” and the risk of a depression if economic shutdowns last beyond 90 days.

The delicate balance between human safety and economic recovery continues and the markets have proved relatively robust given all the uncertainty. Until we write again, please do stay safe and well.