The arrival of coronavirus in China at the beginning of the year represented an immediate supply shock to the global economy (the Chinese stopped producing and exporting). That created its own demand shock (they weren’t buying either – and the rest of us started to get nervous as the virus spread). This was unusual enough – you don’t often get demand and supply shocks at once. But it’s got a lot weirder since. First another supply-shock bomb appeared in the form of the new oil wars. And then, another whopping demand shock (a positive one this time) turned up in the form of massive monetary and fiscal stimulus in the UK.
On Wednesday, the Bank of England cut interest rates by 0.5% and took various measures to make sure credit keeps flowing. The rate cut is more grandstanding than anything else – and comes with all the usual downsides (bad news for savers and terrible news for pension funds). Cheaper money is also clearly not going to do much to overcome the virus itself, or indeed to persuade consumers to nip to the shops.
However, the other measures make sense. The key thing is cash. Keeping companies alive (making stuff, providing services and maintaining employment) is about making sure that they have more cash coming in than going out – making loans easier to give and to get is all part of that. So was this emergency bout of monetary policy necessary? Probably – to send the usual “whatever it takes” message to nervous markets if nothing else. Was it ever going to be sufficient to keep us out of recession alone? Absolutely not.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
This brings us to the Budget. On Wednesday, the chancellor, Rishi Sunak, announced an extraordinary package for the support of UK businesses. We look at some of the measures this week, but the real point of them is the same as that of the monetary stimulus – to help firms keep the show on the road until what Sunak keeps telling us are “exceptional circumstances” ease up.
The problem is that it doesn’t come cheap. We stopped being able to add up the total of Sunak’s promises about half an hour into his Budget. That is not a good thing – the long-term effects of overspending are rarely good. Sunak might be right that these are exceptional circumstances. But, as all ex-chancellors know, once introduced, even exceptional or “temporary” spending is very hard to roll back. The same goes for ex-governors of the Bank of England and loose monetary policy: they all know that cutting is rather easier than raising rates.
How do you invest into these exceptional circumstances? With some difficulty. This week, we look at the possibilities in the new age of rail. David Stevenson looks at how some of the big trusts I know a lot of you hold (as I do) have held up over the last week. Personal Assets, which we have long held in anticipation of a new financial crisis, has done exactly as it should have and protected our capital. Phew. John Stepek looks at the investment trusts that are currently trading on very large discounts. Some probably should be. Others might be making their way into buy territory. Be ready! Finally, in these increasingly tricky times you need a reliable yield – Max King has some interesting ideas for you.
-
Will Labour scrap the British ISA?While it was the brainchild of the Conservatives, the British ISA received little love and now it seems Rachel Reeves may scrap the idea altogether. What does this mean for the ISA landscape?
-
Direct Line returns to profit but loses almost 500,000 customers - here is what it meansDirect Line posted a pre-tax profit of £61.6m for the six months to June 30, compared to losses of more than £75m a year ago - what does it mean for the insurance sector?
-
UK wages grow at a record paceThe latest UK wages data will add pressure on the BoE to push interest rates even higher.
-
Trapped in a time of zombie governmentIt’s not just companies that are eking out an existence, says Max King. The state is in the twilight zone too.
-
America is in deep denial over debtThe downgrade in America’s credit rating was much criticised by the US government, says Alex Rankine. But was it a long time coming?
-
UK economy avoids stagnation with surprise growthGross domestic product increased by 0.2% in the second quarter and by 0.5% in June
-
Bank of England raises interest rates to 5.25%The Bank has hiked rates from 5% to 5.25%, marking the 14th increase in a row. We explain what it means for savers and homeowners - and whether more rate rises are on the horizon
-
UK wage growth hits a record highStubborn inflation fuels wage growth, hitting a 20-year record high. But unemployment jumps
-
UK inflation remains at 8.7% ‒ what it means for your moneyInflation was unmoved at 8.7% in the 12 months to May. What does this ‘sticky’ rate of inflation mean for your money?
-
VICE bankruptcy: how did it happen?Was the VICE bankruptcy inevitable? We look into how the once multibillion-dollar came crashing down.
