Rishi Sunak could be in for an expensive surprise, as it appears he’s vastly underestimated what the take up of the furlough scheme would be. Original forecasts said that about 10% of the private sector would end up on the scheme, which is about three million people. A Survey by the BCC has showed that more than 40% of companies surveyed intended to put upto half of their workforce on the scheme and some said as many as 75% of the workforce would go onto it. The original estimate was that the three million on the scheme would cost the treasury £10bn over three months, now it looks like that more than triple.

Tellingly, the survey also revealed that almost nobody applying to banks for the government backed loans had been able to get one, meaning that they could well have been forced down this route because the banks aren’t playing ball. This could be for a few reasons, but we’ll give the banks the benefit of the doubt and say that a likely contributor is the oxymoronic part of the guidelines that says ‘companies should only qualify for covid financing if they don’t qualify for normal financing, but should only receive the funding if the businesses are viable’ which basically leaves businesses that are viable taking up normal terms and businesses that need a rescue not being able to get one. The FT has the detail on all of this.

The IMF goes a step further than state backed funding and talks about governments preparing for state backed ownership: They suggest that we should take a page from the great depression playbook where governments bought up failing companies to save them and keep the wheels turning. The thought of a Tory government taking a broad swathe of businesses into public ownership seems far too left field to entertain for now, but then so did Mr Sunak’s bailout. This Telegraph article has more on it and also a great chart on what governments are spending as a percentage of GDP on fighting the crisis – we’d make the point that comparing expenditure by GDP isn’t the best measure, as high GDP doesn’t necessarily mean high tax receipts and it will be taxes that have to service the debts.

Away from the virus;  Trump has warned Iran that they will pay a very heavy price for any “sneak attack” that they might carry out on US troops, assets or interests. This might be a very calculated move on Trump to try and get back to what he’s ‘good at’ (hard-line rhetoric) and take him away from what he’s not so good at (take your pick). In the background of all of this is an election campaign that is going to be fought and won on the issue of the day. If that issue isn’t Covid then he’s back in front – it’s hard to see how it won’t be this, but we didn’t even think of this as an issue two months ago, who knows where we’ll be if we fast forward two months, so better to keep some issues ready to be brought to the fore.

A smarter move that Trump might make here is to try and cross the divide and bring some Democratic ideas into play. One opportunity he’s got is to approve their infrastructure plan as phase four of their bailout package. The plan would see $760bn spent over five years – The plan is pretty far reaching and one area that has been highlighted by this is the lack of high speed broadband in large areas of rural America, which has stopped children getting online to join in classes. Lawmakers aren’t back in DC until the 20th April and Republicans want to see how the first parts of their bailout workout first, so we don’t hold out too much hope.

On the markets; the FTSE didn’t get off to the start to the year that we’d hoped for. Falling around 4% over the course of yesterday! The banks axing dividends was partly to blame, but the risk-off sentiment in equities wasn’t just isolated to the UK. Sterling made a good move off the back of a weaker stock market though and is now starting to look respectable again – versus the euro at least. We suspect someone will remind the market that we’re heading for a hard Brexit in nine months’ time though, so we won’t hold out masses of hope for the move to maintain.

For anyone wanting a long read this morning, then this Wall Street Journal opinion piece on how the “fireman are also the arsonists” is worth a go – another noteworthy quote; “if 2% (interest rates) invite trouble, then zero percent almost demands it.”
Be well.


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