Pandemenomics for UK plc

Quite a bumpy set of results out from major UK companies today. Big banks like Lloyds Bank and HSBC have returned to strong profits already. Plenty of transactions for them, a buoyant housing market and growing business sector have helped them. Additionally, as I wrote here a couple of weeks ago, there is no recession likely now for a long time, so they have been able to reduce provisions for bad debts. 

On the other hand, Dixons has closed all of its airport shops. What am I going to do when bored at the airport if not look at the over-priced electronics and gadgets for a few minutes? This is due to both Brexit, with the UK ending airside tax breaks and also the pandemic with passenger numbers likely to be low for a long time to come. 

Sainsbury's has chosen a kitchen sink moment too (this is when the CEO decides to out all bad news at once with an excuse, such that they can do better in future and earn their options then). The excuse is covid but how the only shops to stay open in Covid lost money is beyond me. My local Sainsbury's has been heaving with people all the time. The truth must be that the internal re-organisation has been less successful and cost more / saved less than thought by some margin - but covid is a better excuse to use to try to bamboozle investors. 

it is good to see the banks joining in the profit making and seeing happy days ahead - these days banks are very conservative so that is a strong position to take. On the other hand, Dixons shows and example of how airports are going to look very different in the future, this scarring will be very deep in the travel sector and maybe will take a decade to repair. 

Restructuring UK plc 2020/21

As you may have noticed, UK Plc is in a very sickly state. The first impact of Covid-19 was to push over the edge a whole bunch of companies that were teetering on the brink anyway - like Flybe as a prime example. The casual dining sector, hugely oversupplied, had been struggling and now we are seeing barely any chain survive with nearly all of the either in administration or about to be, like Prezzo.

I don't think many of these dining options are going to do much damage to the overall economy, we did not need 3,000 variations on pasta and burgers to really push on in the 21st Century.

However, what is harder, notably for the retail sector but also SME's, is that the rent holidays and mortgage holidays are all going to come to an end in the next few months, along with the need to increase contribution to the furlough scheme.

These extra costs are a huge debt burden on businesses, some of whom may bounce back on pent up demand, but others who thanks to social distancing, will suffer continued slow business. But this slow business will be under the added debt burden above.

This wont be sustainable for many businesses in the medium term. In the short-term many will try to struggle on, but sooner or later the owners will try the administration route or end up in insolvency.

Much of the lending has been arranged by the British Business Bank, which has worked with the clearing banks to distribute the interest-free Government loans.

At the moment and considering the above, a huge chunk of this is going to have to be written off if the businesses fail. Which leads me to the conclusion that in order to keep businesses going why not write-off a big chunk anyway, before the businesses go under?

This will be difficult politically to achieve, but either the Government takes on the debt or the private economy will be ruined - so in a different way to 2008, but with a similar outcome. History does not repeat but it does rhyme. Last time the Government bailed out the banks, this time it will have to be businesses directly.