Glimmers of hope for the New Year!

Over the past year, our vulnerabilities have been starkly exposed by coronavirus, and the pandemic
continues to present an array of challenges on many different levels. Economic frailties have also been laid
bare but, as we enter a new year, shoots of optimism are beginning to emerge, with rising hopes of recovery in
2021 and beyond.
A gradual recovery The International Monetary Fund’s (IMF) final 2020 assessment of global economic prospects was entitled ‘A Long and Difficult Ascent’. This provides an apt description of the current situation, with the international soothsayer’s predictions pointing to a moderate rebound in 2021 with a continuing gradual recovery
over the following few years.
Reasons to be cheerful While the IMF forecast does highlight continuing risks and uncertainties, which largely centre on the future path of the pandemic, there are reasons for some guarded optimism. Continuing progress in the search for COVID-19 vaccines and the economic stimuli promised by US President-elect Joe Biden, for instance, should both have a positive impact on market sentiment during 2021.
SFFS Simply Wealth_Winter 21

Our economic review is intended to provide background to recent developments in investment
markets as well as to give an indication of how some key issues could impact in the future.
It is not intended that individual investment decisions should be taken based on this information; we are
always ready to discuss your individual requirements. We hope you will find this review to be of interest.

Vaccinations provide economic hope!

Although recently released data has revealed a decline in UK economic activity, Bank of England (BoE)
Governor Andrew Bailey, has expressed hopes that the vaccine roll-out programme will begin to spark a
“pronounced recovery.”
The latest gross domestic product (GDP) figures published by the Office for National Statistics (ONS) showed the UK
economy shrank by 2.6% in November, as fresh government restrictions to contain the pandemic hit the service sector.
This was the first reported monthly economic contraction since April and left GDP 8.5% below its pre-pandemic peak.
However, the decline was significantly smaller than most economists had been predicting and suggests companies
were better prepared for the second lockdown. ONS said many firms had  adjusted to new pandemic working
conditions, for example by expanding click and collect services or other online operations, while manufacturing and
construction generally continued to operate throughout November.
The third, stricter lockdown introduced  in early January is widely expected to result in economic contraction in the
first quarter of 2021, particularly as many businesses will also be adapting to the introduction of post-Brexit EU trade barriers.
There does appear to be a growing sense of optimism that the UK economy will recover relatively strongly over the
remainder of this year.
SFFS Economic Review_Jan 21

Following a gruelling nine-month negotiation process, the UK and EU finally agreed and signed a post-
Brexit trade deal just a day before the transition period ended.  Although the UK officially left the EU
on 31 January 2020, trade had continued on the same basis during the 11-month transition period. The two entities moved to new arrangements at 23:00 GMT on 31 December when the UK formally severed its ties with the EU.
Negotiations surrounding the ‘EU-UK Trade and Co-operation Agreement’ were concluded on Christmas Eve and
the 27 EU member states gave written approval for the agreement on 29 December. The following day MPs
overwhelmingly approved the deal in a parliamentary vote, with the bill backed by a Commons majority of 521 to 73.
That paved the way for European Commission President Ursula von der Leyen to sign the treaty in Brussels on
the morning of 30 December and, later  that day, the treaty was flown to the UK for Prime Minister Boris Johnson to sign in Downing Street. Business groups expressed widespread relief that a deal, which preserves tariff and quota-free EU-UK trade for goods and components worth around £660bn, had ultimately been agreed. However, they also urged the government to provide quick and clear guidance to ensure  trade and services can keep flowing.
Commenting on the deal, CBI Director General Tony Danker said, “This will come as a huge relief to British business.
But coming so late in the day it is vital that both sides take instant steps to keep trade moving and services flowing
while firms adjust. Immediate guidance from government is required across all sectors.” The government has acknowledged the new relationship will involve ‘practical and procedural changes’ and warned of ‘bumpy moments’ for UK businesses as they get to grips with the new trading SFFS Economic Review_Dec 20rules.

Spending Review:

Chancellor Rishi Sunak has announced government spending plans for the coming 12 months as part of his
Spending Review, delivered to the House of Commons on 25 November.
During his statement, Mr Sunak said the government had already spent £280bn supporting the economy
through the pandemic and pledged a further £55bn over the coming year as part of a series of measures designed
to aid economic recovery. As a result, government borrowing is set to rise to a peacetime high.
Estimates produced by the government’s independent forecaster, the Office for Budget Responsibility (OBR),
suggest the new measures will push borrowing up to £394bn in the current fiscal year, £22bn more than predicted
in August. OBR forecasts also imply borrowing will stay above £100bn per annum for the next five years and
warn tax rises or spending cuts will be required to stabilise the burgeoning debt. OBR Chairman, Richard Hughes, said, “The Chancellor will need to find £20bn to £30bn in spending cuts or tax rises if he wants to balance revenues and day t0 day spending, and stop debt rising by the end of this parliament.” Among other announcements, the
Chancellor said around 1.3 million public sector workers will have their pay frozen next year arguing he could not justify a rise when many private sector employees have seen pay and hours cut during the crisis. He did, though, confirm that some NHS staff and lower-paid workers will be excluded from the freeze. Mr Sunak also announced that the National Living Wage will rise by 19p per hour to £8.91, with the rate extended to cover those aged 23 and over. In addition, the Chancellor confirmed the government is suspending its commitment to spend 0.7% of national income on overseas aid; the new ‘temporary’ 0.5% target will yield savings of around £4bn.SFFS Economic Review_Nov 20

Chancellor Rishi Sunak has set out a series of revamped measures designed to halt job losses and stem
business failures as part of his Winter Economy Plan. Mr Sunak’s statement, delivered in the House of Commons on 24 September, was a last-minute replacement for the planned Autumn Budget which the Treasury had cancelled the previous day. That decision was taken in order to focus efforts on dealing with the short-term economic problems caused by the tightening of coronavirus restrictions. The centrepiece of the Winter Economy Plan was a new scheme to replace furlough, which will run from 1 November. The Job Support Scheme will last for six months and see government subsidise the pay of employees who work at least a third of their normal hours. Under the scheme, employers will pay employees for hours they actually work, with government and the employer each covering a third of the hours staff can’t work. Other announcements included a continuation of the self-employed grant on similar terms to the Job Support Scheme and an extension of the emergency VAT cut for tourism and hospitality until the end of March. In addition, the deadline on coronavirus loan schemes was extended and amended terms
introduced for existing borrowers, while businesses were given more time and flexibility to pay deferred tax bills.
During his statement, the Chancellor stressed that the government’s economic response to the pandemic
was evolving and that his aim now was to cushion a painful adjustment to a new way of living and working. He did
though make it perfectly clear that his emphasis has firmly shifted to protecting “viable” jobs. Despite cancelling the Autumn Budget, the Treasury has confirmed that it still plans to press ahead with a comprehensive spending review that is also scheduled to take place this autumn.  SFFS Economic Review_Sep 20