Fixed Income Research & Macro Strategy (FIRMS) – 4X Global

  • Part One of this Five-part series of Insights into the UK economy and financial markets examines the devastating impact which the national lockdown – introduced on 23rd March – has had on domestic economic activity and the implications for the UK (and other major economies) going forward.
  • Records tumbled in April, for all the wrong reasons, with the GDP contraction during the 2008-2009 financial crisis a mere blip in comparison.

UK private cash reserve vs GDP

  • Bank of England, retail sales and other monthly data for March-April reveal that an extremely risk-averse private sector facing acute uncertainty was building up cash reserves and shoring up balance sheets, not spending or investing.
  • Households were both deprived of the opportunity to spend and of purchasing power due to the slump in employment and earnings  – a theme we will explore in greater detail in Part Two.
  • After collapsing a staggering 20.4% mom in April, GDP likely fell further in May albeit at a far slower rate and will rise in June, in our view – a case of the “awful, bad and better” – the theme of Part Three.
  • Part four will look at the outlook for the economy, Sterling and rates market in the second half of 2020.
  • Finally, Part Five will explore the medium-term risk of Prime Minister Johnson’s government having to both slash spending and hike taxes to cut its deficit-to-GDP ratio to single-digits, despite its borrowing requirements being largely met by the Bank of England’s asset-purchase program.

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Ryan Littlestone

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