Certainly, the travel industry, the hospitality industry and some other niche areas will require more support than other industries as they are not authorised to open under the current government restrictions until July 4th, and there are heavy restrictions imposed in regard to opening on this date. Further to that it’s expected that companies will struggle to regain consumer confidence as the country tries to overcome the anxiety of a serious pandemic.
The Bank of England have been doing numerous economic assessments, as has the government, looking into how the economy is set to recover once the pandemic has been brought under control and have now announced some new measures to help the recovery period.
Areas such as property and retail are thought to be well equipped to weather the storm, however, these measures will have a wider impact on the economy as a whole, and so may well benefit these industries indirectly, as well as negatively affect others.
The question then is how we assess the potential success or failure of this intervention, and what measurements we consider in that assessment.
The Bank of England, the UK’s central bank, has announced that they will provide £100 billion worth of liquidity into the banking system, otherwise known as quantitative easing.
It sounds complicated, but essentially it means that the bank will buy government bonds which will allow the government to borrow more money to be able to support businesses and workers in the right ways as the economy moves out of lockdown.
One aspect of the central bank’s response is that they are not able to cut interest rates any further (currently at historic lows of 0.1%) which in turn means that savings rates are severely lowered, but borrowing is much cheaper.
Without the ability to further cut interest rates the bank must stimulate spending in other ways, and that means providing more money to the government to increase consumer confidence and demand in ailing industries like travel and hospitality.
The government have been praised so far for their economic response, with furlough schemes helping businesses keep workers in a job whilst lockdown was implemented for example.
But what impact could this have on the wider economy?
We already know that renters and property buyers have increased their demand for property markedly since the re-opening of estate agents, and if the government is to use extra money to further stimulate the economy this is likely to have a positive effect for people who will have more money to spend on rent and mortgage payments.
With supply already low, an increase in demand is likely to drive rents and house prices up, pleasing sellers and landlords as well as property investors.
Some negatives are that quantitative easing weighs on pension funds, as it drives the price of government bonds higher.
However, investors often benefit by seeing share prices increase sharply whenever money is pumped into the economy, so there’s swings and roundabouts as with anything. The likeliest outcome is that these measures help the economy bounce back stronger, helping struggling industries as well as further boosting stronger ones such as property.
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