Good morning,

Oxford Street and high streets across the nation were busier yesterday than at any other time since the start of the year, as non-essential retail got underway.  Footfall numbers easily beat those of this time last year (because we were in lockdown in April 2020) but it wasn’t an immediate return to pre-pandemic levels, with analysts Springboard saying that it was about 25% down on 2019.  This is the first day back though and for as many people that will have been keen to get back out there and spend, there will be plenty that are keen to avoid the crowds.  The real test of how well this phase of the lockdown is going will be seen in a few weeks, once we start to see credit card payments data (we’ll have to wait until Mid-May before we hear from the ONS on the official retail sales for April) also we’ll be looking at the covid case rates in the coming weeks to ensure that any recovery is sustainable and not likely to put us back into some kind of restriction.  On the hospitality side of things, it was al-fresco for the hardy yesterday but an improvement in the weather in the coming days is likely to see those with outdoor space continue to do well and it’s a short five weeks until restaurants and indoor hospitality can re-open.

Something that may hinder the UK’s full recovery and future growth trajectory is the problem that business bailout schemes may have created zombie companies:  Yesterday the former governor of the Bank of England, Mervyn King, addressed the Royal Economic Society and spoke about the need for policymakers to recognize that these companies will hold back overall productivity because resources would be misallocated and to play their part in making sure that regulation allows these companies to disappear so that companies and other sectors can expand.  His main point is that if banks are continuing to prop these companies up through low-rate long-term loans, which the companies can just about afford to service, then the banks aren’t going to have the capital and appetite to lend to other sectors.  The Telegraph has some more detail.

The markets took little notice of the high street yesterday and Sterling remains in a tight trading range having come under a lot of pressure last week over Northern Ireland.  The FT reported yesterday that the EU and UK were ‘edging towards accord’ on trade rules and that David Frost and Maros Sefcovic might be meeting this week to review the progress that’s been made.  This report wasn’t enough for Sterling to get a lift and until we get something in writing, it doesn’t seem like they will.  The talks themselves are based on a UK submission to Europe over the implementation of the Northern Ireland protocol after the UK unilaterally delayed its implementation for six months, which led to the EU to go legal.  Both sides sitting around a table is a good thing, but if they only agree to delay the implementation rather than fix some of the problems that have been leading to the disruption in supply chains then it might not calm things down as much as everyone is hoping it will.

Post Brexit trade is a story affecting both sides of the channel though and the FT has an interesting read on the impact it’s having in France.  The story is very much the same as here, with delays in shipping and increased costs because often lorries are having to come back to the continent empty.  This has been soaked up by large companies, but it’s the small ones that are struggling to adapt to changes and are suffering.  The trade balance between France and the UK is heavily skewed towards French exports and therefore a trade surplus for France – and for French business, it’s more painful to lose a load of customers of your goods than it is to have to find alternative sources of imports, so this isn’t going to go unnoticed.

Elsewhere in Europe:  Poland’s healthcare service is being tested to its limits as cases and hospitalisations are at record highs.  We’ll point to another long read in the FT to better understand the situation there and why they’re doing so badly.  The short summary is an underfunded health system, the lowest number of doctors per capita in the EU and also a few mis-steps back in December when thousands of Polish citizens returned home from the UK and some invariably brought with them cases of the UK variant.

The Russian ruble is coming under pressure in the markets as concerns build over exactly what Putin is up to on the Ukrainian border.  There are plenty of reports of large military movements heading towards Eastern Ukraine and numbers are now estimated at 40,000 troops on the border there and 40,000 in Crimea.  Russia has said that it fears that fighting in the area may endanger civilians and as such would take steps to protect them – on either side of the border.  The US has said they have “real concerns” but that if  “Russia acts recklessly, or aggressively, there will be costs, there will be consequences”.

In the US:  The Wall Street Journal is reporting that negotiations are underway over the infrastructure bill and that both sides are open to compromise in order to get something done – with the Republicans more likely to want to negotiate something that feels slightly more agreeable than just block it and then be steamrolled by democratic majorities.  This is being taken positively and though the stock markets paused for breath yesterday, there is general positivity around the likelihood of a deal getting done in relatively short order.

Looking to today:  UK data has been and gone, with GDP in February narrowly missing expectations at 0.4% month on month gain.  Next up is the German ZEW economic sentiment survey and then the afternoon is given over to a glut of Fed speakers and, importantly, US inflation data which will be closely watched to make sure it’s all in check.

Be well


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