The Week UK - 29.02.2020

CITY 51

29 February 2020 THE WEEK

Talking points

InCharlesDickens’sDavidCopperfield,
thehaplessclerk,WilkinsMicawber,
reliesonthehopethat“somethingwill
turnup”.Ashepreparesforhisfirst
Budgeton 11 March,thenewChancellor
RishiSunak“issimilarlystrugglingto
makethenumbersaddup”,saidJeremy
WarnerinTheSundayTelegraph.Sunak
ishemmedinonallsides.Constrained
byTorymanifestocommitmentsto
“balancethebooksonday-to-day
spending”by 202 2–whileavoiding
increasesonincometax,national
insuranceandVAT–he’salsounder
pressurefromNo. 10 toopenthe
spendingspigots.Ultimately,something’s
gottogive.Sunak’sunpalatablechoiceis
betweenunpopulartaxrisesandabandoninghisfinancialrules–
therebyunderminingthecredibilityoffuturefiscaltargets.Good
luckin“unleashingBritain’spotential”,Rishi.Youwillneedit.

“TheresponsibilityrestingonSunak’sshouldersisconsiderable,”
saidDavidSmithinTheSundayTimes.ThefirstBudgetofany
newgovernmentisimportant insettingthedirection forthenext
fewyears.“History tellsus” thattheymatteralot.George
Osborne’s“emergencyBudget”in2010heraldedthe startofa
decade ofausterity–and itmaybe fairtoregardSunak as“a
reverseOsborne”.Facedwitha“weakprivatesector”, he’llbe
usingpublic spending–inparticular£100bnofextra

infrastructurespending–todrive

growth.That’s“asignificantmoment”

foraTorychancellor,particularlyan

inexperiencedone.Sunak’staskismade

alltheharderbytherequirement“to

satisfy”somanydifferentaudiences,said

LarryElliottinTheGuardian:fromthe

votersoftheMidlandsandtheNorth

whogavethePMhismajority,to

traditionalToriesandfinancialmarkets.

He’salsounderpressuretopullsome-

thingsignificantoutofhishataheadof

theCOP26climatechangeconferencein

November.“Apackagethatpushesall

thenecessarybuttonsisnotgoingtobe

easy.”ButunlessSunakcanfindaway

tomaketheBudgetconsistentwiththe

Government’s 205 0net-zerocarbonemissionspromise–a

transitionestimatedtocostabout£100bnannuallyfor20years–

“adiplomaticfailureofcatastrophicproportionslooms”.

“Myhumblerhope,”saidLibbyPurvesinTheTimes,isthat

somet hingwill bedonetohelpsmallsavers. Withinterestratesso

low,the sensehasgrown that savingisa“mug’sgame”,andyou

mightaswell“pileup thecredit”.Yetnotonepo liticalparty

“offered anyremedy”intheirmanifestos.Perhaps theythink

“smallsaversdon’t count”.Well,theydo.We arebecominga

society that “rewardsprofligacyanddespises prudence”.If the

newChancellor wants tomakehismark,lethimtacklethat.

Issue of the week: Budget wish lists

Sunak:settingthedirectionforthenextfewyears

Corona contagion: what the experts think

●The fearspreads
Whenthecoronavirus
epidemicfirstemerged
lastmonth,“markets
dippedintothered,but
bounced back within
days,sendingWallStreet
to freshhighs, despite
thegrowingcrisisin
Asia’sindustrial
powerhouse”, said
CallumJonesinThe
Times.Thisweek,
“investorsdrewalinein thesand”.Fears
thattheepidemiccould escalateintoa
globalpandemic triggeredasell-off that
saw the FTSE 100sufferits worst dayin
four years onMonday.Marke ts elsewhere
also sold off heavily, with the Borsa
ItalianainMilanleadingthe declines. The
latest restrictions imposed by governments
seeking to getagriponthe crisis –notably
Italy’s–appear to be“the straw thatbroke
the camel’s back”,notedSamuelTombsof
Pantheon Macroeconomics. It remains
unclear whetherthe fall s“amount to a
blip”,or re presentaturning point in the
lengthy bull market.Butfinancialmarkets
“arestarting to price inan increasingly
nasty economic shock”.

●Call thecavalry?
“That funnysmel linthe ai rist he
unmistakable odourofscreechingbrakes
and tyresskidding to an abrupt stop,” said
KatieMartin in theFT. Forweeks, the

broadassumptionin

markets wasthatthe

viruswas“areal,but

peripheralworry”.

GoldmanSachs assured

clients lessthantwo

weeksagothatconcerns

werefading–atypically

optimisticposition.Now

thatmarketshave fallen,

“thecavalryisexpected

in theformofcentral

banks”.Theywould

probablyprovide some “temporaryrelief”.

Butit’shardtoseehow easiermoneta ry

policy“can fixan economic pullback

basedondeaths, grounded flights, closed

factories and ghost cities”.

●Pressureonprofits

“Profit warningsfromcompanies are

pilingup”, as “the outbreak ’s impacton

supply chains andconsumer spending

takesitstoll”,saidThe NewYorkTimes.

Airlines have beenparticularly badly hit,

prompting UnitedAirlines to abandonits

earnings guidancefor2020altogether,

because“the rangeof possible scenarios is

too wide” toprovideasensible forecast.

Some analysts arealready urging punters

to “buy thedip”; othersreckon it’s too

soon forthat–marketscoul dyet fall

further. Butthere arepockets of growth.

As more companiestell employeestostay

at home,share sinthe videoconferencing

company Zoomhave been,well,zooming.

Buoyant property

It took London house prices just 2.3

years to recover from the ravages of the

2008 financial crash, said Jessica Clark

in City AM. “Oxford and Cambridge

followed the capital”–and nowthere’s

aclean sweep.According to the Zoopla

UK Cities House Price Index, property

prices across English cities are back

to at least their 2007 levels. The last

bastion to fall was Newcastle, which

only registered recovery last December.

According to economist Howard Archer

of the EY Item Club, there’s growing

evidence that “the housing market is

changing upagearafteralargely

lacklustre 2019”. There’s certainly a

whiff of spring in the air, said Phillip

Inman in The Guardian. Land Registry

data shows that house prices “have

increased in every region in the UK for

the first time in two years”; meanwhile,

mortgage approvals “rose markedly”

in December. Apparently, the

Conservative election victory and a

more settled economic outlook have

“calmed buyers’ nerves”.

If anything, property experts consider

“the outlook for sales and prices” over

the coming year to be “even brighter”,

said the FT. In its most recent survey,

the Royal Institution of Chartered

Surveyors found that 66% of

respondents expected sales to rise,

with the top end of the market–which

hadbeen particularly hard hit by

“Brexit-related uncertainty”–also

showing “renewed signs of life”.

Withpressurecomingfromallsides,thenewChancellorfacesataxingtimemakinghisnumbersaddup

Fears ofapandemic have hit markets