Charlotte Street Partners



An economic washout of two halves

Written by Katie Stanton, associate partner
Edited by Kevin Pringle, partner
14 October 2020

Good morning,

Yesterday was awash with economic data, a deluge of catastrophe interspersed with little nuggets of success and hope. Today, I am going to try and make some sense of it.
Firstly, the UK unemployment rate grew to 4.5% in the three months to August, compared with 4.1% in the previous quarter. This was driven by a fall in male self-employment, with young people, part-time workers (and ballet dancers named Fatima) disproportionately impacted.
At the same time, redundancies rose to their highest level since 2009, the biggest jump since such statistics were first published in 1995, according to the Office for National Statistics. Economists are predicting more job losses where that came from, as stronger Covid-19 restrictions come into force while the government’s support for workers weakens.
Still, alongside this steady stream of negativity is news of people returning to work following the economic upswing over the summer. The ONS recorded a strong quarterly increase in vacancies, driven by small, flexible businesses. Plus, the number of employees on companies’ payrolls rose by 0.1%, or 20,000 people, between August and September, although it is still 629,000 lower than a year earlier. The general feeling is that it could have been a lot worse, and that government support has helped, at least for now.
Meanwhile, the International Monetary Fund said that the global economy will shrink by 4.4% this year — which is a lot, but not quite as much as the 5.2% decline forecast in June.
This is likely buoyed by accelerating economic recovery in countries like China and South Korea, which are seeing strong export sales and declining cases of coronavirus. China is set to grow by 1.9% this year, far exceeding expectations, and the total value of China’s stock market has this morning climbed to a record high of more than $10tn.
But just as manufacturing-heavy economies, such as China, are steaming ahead, so too are those dependent on oil or service industries floundering. Just as big firms and agile tech start-ups are innovating and adapting, so too have many restaurant, cinema and gallery owners pulled down the shutters for the last time. And just as the world’s billionaires have grown their fortunes by £7.8tn during this pandemic and increased their market share, so too are part-time, unstable workers facing a winter of unemployment.
You see, if you take a step back from the sheer volume of information, it becomes clear that our economic recovery will be one of two halves: one side has the scale to withstand the rough months, the space, skill and money to adapt, the luck of which industry it is or the fortune of adept governance; the other side does not.
We can apply this thinking to people, businesses, even entire markets. Factors attributed well before this pandemic are rendering its impacts uneven: company size, location, industry; a person’s gender, ethnicity, socioeconomic background; an economy’s composition, governance, resilience. This is a crisis of winners and losers; the winners ride the wave, the losers are sunk. Perhaps it’s time this fact elicited a more targeted response. 


The new three-tier system of Covid-19 restrictions begins today in England. Most of the country is in the lowest tier – medium – but millions of people in the north and midlands now face extra curbs on households mixing. The Liverpool region is the only area to be under the toughest rules, with pubs and bars not serving meals closed.
Meanwhile Labour leader, Sir Keir Starmer, called on the government to go further and implement a half-term “circuit breaker” lockdown, warning that without one Britain would “sleepwalk into a long bleak winter”. (£)
Democratic presidential candidate Joe Biden has said that Donald Trump views older voters as “expendable” and “forgettable”, as he seeks to win fresh support in the battleground state of Florida.

Business and economy

Some hedge funds are betting against the stock market’s winners, anticipating that the best days for home computing, gym equipment, grocery retail and healthcare stocks might be over. They contend that these “Covid over-earners” are now on an unsustainable trajectory and are betting that they will return to their pre-crisis growth rate at some point soon. (£)
Ikea, the world’s biggest furniture business, will next month launch a scheme to buy back furniture. Under the new plan, which is designed to make sustainable living simpler and more accessible, customers will be able to return items in exchange for vouchers worth up to 50% of the original price to be spent at its stores.
Apple has introduced a redesigned line-up of iPhones enabled for 5G network speed, promising to usher in a “new era” for its flagship product. Its four new iPhones include a cheaper model – although at £699, it’s not that cheap – and a £99 home speaker to appeal to budget-conscious consumers hit by the pandemic. (£)

Columns of note

Alf Young notes in this morning’s Times that constant tinkering does not an economic strategy make. If it did, Scotland would be an economic superpower. This forms part of the reason why Scottish Enterprise chief executive Steve Dunlop has chosen to walk away, Young argues. Successive Scottish governments at Holyrood have “eschewed a clear and focused economic strategy” in favour of dabbling with the architecture of agencies, diminishing their power to act and advise. (£) 

Writing in The Spectator, James Johnson asks: is Britain really a nation of lockdown-lovers? According to the opinion polls, it would seem so. But scratch beneath the surface, ask qualitative questions of focus groups, and you will find growing discontent. Back in March, voicing any opposition to restrictions would have been heresy; now, people are much more willing to air their feelings, their cheeky tricks and tips to circumvent the rules. Consequently, argues Johnson, lockdown 2.0 is not going to be anywhere near as straightforward where compliance is concerned. (£)
TM Luhrmann this morning explains why Supreme Court nominee Amy Coney Barrett might surprise everyone. Writing in The Atlantic, she notes that commentators treat Barrett as a conservative Christian who will vote lockstep with her other conservative justices. But her religious background, grounded in the hippie Christian movements of the 1960s, which themselves were based on a critique of the modern world, actually makes her less predictable than many presume.

Cartoon source: The Times


What happened yesterday?

The FTSE 100 ended 0.5% lower yesterday at 5,969 points, with a tenth of the index shedding more than three per cent. Experian was the biggest riser, up 1.7%.
In the US, Wall Street ended a four-day winning streak, with the Dow Jones and S&P indices both down yesterday. In particular, the bleak forecast from the IMF and the pause in Johnson & Johnson’s Covid vaccine trial seemed to elevate concerns about a slower than expected economic rebound. J&J fell 2.3% after saying it would take a “few days” to review its halted clinical trial following an unexplained illness in a study participant. 
The pound was down 0.16% against the dollar at $1.29, and down 0.13% against the euro at €1.10.

In company news:

Metro Bank has become the latest lender to stop opening new accounts for businesses, despite the Bank of England calling for credit to keep flowing.
SSE has sold its interest in energy-from-waste power plants in West Yorkshire for £995m, as it offloads assets to focus on power networks and wind farms.
JP Morgan, America’s largest bank, yesterday revealed a surprise profit increase in its third-quarter report, beating Wall Street’s forecasts across the board.
Partners at law firm Slaughter and May will receive salaries again after they were suspended in April as the coronavirus took hold.
Led by BlackRock, top institutional shareholders in Procter & Gamble have rebelled over environmental concerns, including the use of palm oil and forest pulp in its products.

What’s happening today?

Angling Direct
Asa Int

Barratt Developments
Diverse Inc
Primorus Inv.
Watches of Switzerland

Applied Graph.
Mj Hudson Grp

Trading announcements

Int economic announcements
(10:00) Industrial Production (EU)
(12:00) MBA Mortgage Applications (US)
(13:30) Producer Price Index (US)

Source: Financial Times

did you know

A London-born 15-year-old has moved one step closer to becoming the first millennial saint. In a service on Saturday in the Italian town Assisi, where he died with leukaemia in 2006, Carlo Acutis became the youngest contemporary person to be beatified. (Source: Independent)

Parliamentary highlights

House of Commons

Oral questions
Prime Minister’s Question Time
Ten Minute Rule Motion
Dogs and Domestic Animals (Accommodation and Protection) – Andrew Rosindell
Opposition Day Debate
Fire and re-hire tactics; Covid contracts and public procurement – Keir Starmer
Electricity generation and the right to become local suppliers – Ben Lake

House of Lords 

Oral questions
Rolls-Royce company’s plans to transfer the manufacture of wide-chord fan blades to Singapore – Lord Greaves
Protecting people from pension scams – Baroness Warwick of Undercliffe
Ending rotational burning of peat moorlands – Lord Randall of Uxbridge
Proposals included in “Project Big Picture” for the reform of the governance of English football – Lord Faulkner of Worcester
Extradition (Provisional Arrest) Bill [HL] – consideration of Commons amendments – Baroness Williams of Trafford
Orders and regulations
Health Protection (Coronavirus, Local COVID-19 Alert Level) (Very High) (England) Regulations 2020 (1105) – Lord Bethell
Health Protection (Coronavirus, Local COVID-19 Alert Level) (High) (England) Regulations 2020 (1104) – Lord Bethell
Health Protection (Coronavirus, Local COVID-19 Alert Level) (Medium) (England) Regulations 2020 (1103) – Lord Bethell

Scottish Parliament 

In recess until 26 October 2020.

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