Market update

Quarterly review

During the final quarter of 2020, the UK was still trading within the European single market, Donald Trump was still the US president, and the third lockdown had yet to be announced. No shellfish or goods had been turned back from Dover. At the same time, the idea of an armed invasion of the US Capitol was a paranoid fantasy. However, by the end of the quarter, the shellfish still remained in the UK, over 30 million of the UK population had been vaccinated, while Donald Trump was no longer president, or on Twitter for that matter.

Quarter 1 2021

Fast forward to the end of the first quarter of 2021, and exactly how much difference the absence of Trump has made to the world is not easy to tell. But it's certainly made it easier to see what else is happening, and it reveals a light at the end of the pandemic tunnel. It is not absurd to hope that the UK may reach the other side without the third resurgence between lockdown and vaccinations. More importantly for the world as a whole, that seems to be true of the US too.

Unfortunately, the point of the tunnel metaphor is the uncertainty about how far away the light is. Sadly, that applies to the Coronavirus pandemic. There are still threats to the UK’s economic recovery, but it’s worth highlighting our prospects are currently among the best.

Europe's second wave was not as fierce as the UK but is not yet fully controlled, and vaccination lags behind. More local lockdowns are happening now to head off a third flare-up. In Brazil and India, the virus appears entirely out of control. That's terrible in itself and carries the threat of generating new strains and spreading across the globe.

It’s easy to find an economic indicator that looks like the light at the end of the tunnel. Working out whether these indicators really mean what they look like they mean is a sterner test. The changes they are trying to reflect are so significant and unusual that most are impossible to interpret usefully. For instance, we can look at UK wage inflation. The latest headline figure from the ONS shows 4.5% growth over the year to February. That would be great news if it meant that people were on average earning 4.5% more, and usually it, more or less, would. What it actually means this time is that the people who lost their jobs over the last year were not earning much, a less encouraging sign.

There are clues everywhere, but they may not mean what they would in more normal times, and they are mixed in with at least as many red herrings. Even where we can be confident about where we are and the general sequence of events, magnitudes and scales will be critical but are much harder to judge.


Progress with vaccines has been better than anticipated, meaning that we can still hope for a return to something like normality in the not too distant future. The world economy was weak before the virus struck. It would be a surprise to find that a global pandemic was the thing needed to revive it.

Rising commodity prices are a drag on the global economy. They so far reflect a low base and the effects of weak demand before the Coronavirus. A rebound of some kind has been underway for some time, so its continuation is not new news, and it may, in fact, have stalled in March.

Much of what happens next is in the hands of the world’s governments and central banks. As such is not determined by natural developments and is vulnerable to mistakes and losing bets. Massive intervention from both has got the economy this far. What they do next will make a big difference. Withdrawing support too soon will undo much of the good work done so far. Still, government borrowing and central bank support are far into uncharted territory.