William John Market Report 14-05-21
William John Market Report 14-05-21Category: Reports
The Treasury’s notable fiscal support schemes during the Covid-19 era this week saw their payoff. According to Companies House, the fourth quarter of 2020 saw a 29.4% increase in incorporated companies compared with the same quarter of 2019 – the largest Q4 year on year increase since 2012. The growth points to a post-pandemic boom in start-ups and companies since March 2020:
Temporary suspension of company strike-offs (compulsory and voluntary) may have contributed to this, however, the Coronavirus Business Interruption Loan Scheme (CBILS), Coronavirus Large Business Interruption Loan Scheme (CLBILS) and Bounce Back Loan Scheme (BBLS) have all played a part in contributing to the trend:
In the first quarter of 2020, there has been an explosion in approved lending through all three facilities and this has transformed to steady growth up to the last report on 10th March 2021.
There are two ways to interpret this. The first is that with the easing of lockdown measures and strong fiscal and monetary policies in place to encourage economic recovery, the U.K. could experience a “post-pandemic” boom in independent business and high street trade as people return to work and consumer spending returns to pre-pandemic levels. This could have a phenomenal impact on driving employment, pushing incomes higher and increasing the velocity of money in the U.K. If this is the case, there is no doubt that the Bank of England will have to hike interest rates back to pre-pandemic levels, boosting consumer savings and commercial interest rates, to temper the inevitable inflation that is beginning to emerge worldwide. This will complement the tapering of the Bank’s asset purchases that was announced just a few weeks ago, which itself will inevitably propagate through the sovereign bond markets.
The second, and more pessimistic view, is that a high number of fraudulent businesses set up by Organised Crime Groups (or opportunists) could be contributing to the “start-up” boom. It remains to be seen what the consequences of these fiscal support schemes will be. But, if this view is true, it is likely that the government will take harsh measures. This includes the recent announcement by the Insolvency Service to invoke permanent director bans on those that fail to repay the Covid-19 support scheme loans.
Either view is plausible at this stage, but credit must go to the Treasury for encouraging counter-intuitive entrepreneurial growth during the pandemic era and this points to a positive summer for business. However, for those that take advantage of taxpayer money in a time of economic crisis, the Government and the Treasury must take harsh punitive measures to set an example and protect the taxpayer.
Any opinions expressed in these documents are those of William John and are provided for information only. E&OE.