At the time of writing, the FTSE 100 is down 33 per cent from the opening bell at the beginning of the year. Today’s fall alone is hovering somewhere between 5 and 8 per cent.
In response, last week’s budget announced £30bn of emergency coronavirus stimulus, and was coupled with an interest rate cut of 0.5 per cent by the Bank of England. And yet still the markets fall with dizzying speed.
For Andrew Bailey, the new governor of the Bank of England – who is today experiencing quite possibly the most brutal first day ever at work – there will be discussions this week about whether or not to cut interest rates further to a staggering 0.01 per cent. But, as has been well-documented, in the era of ultra-low interest rates, fiscal policy will have to take a lot of the slack in the event of such an economic crisis as the one we are experiencing. From a monetary perspective at least, the world economy has never really weaned itself from the life support interest rates that followed the 2008 crisis.
“It was like a seizure or a freeze in the global financial plumbing,” says Pat McFadden, a Labour member of the Business, Energy and Industrial Strategy select committee and a cabinet minister during the 2008 crash. “This is different. This is affecting individual behaviour in a way that was not the case during the financial crisis. You can’t make a car from your house, you’ve got to turn up and work.”
The £30bn coronavirus package announced in the budget is already beginning to look a bit thin, as the requests for bailouts begin to rack up. Rishi Sunak’s measures specifically targeted small and medium-sized businesses, with the government promising to cover the costs of Statutory Sick Pay for companies employing fewer than 250 people, and offering generous business rates relief.
But now that the big boys have joined the queue demanding help, the size of the pot will surely swell. The airlines alone asked for £7.5bn over the weekend. And with a reported 20 per cent drop in passenger numbers, the UK’s faltering rail franchises are not far behind. In other parts of the world — Australia, the US — discussions are already underway for a second round of stimulus, following the failure of initial measures to halt the slide towards recession.
What sectors in particular will demand bailouts? Unsurprisingly, as the world grinds to a halt, the transport industry has taken the first hit, closely followed by travel. The problems of transport are the problems of supply chains – so retail and manufacturing are now being dragged into the equation. For the latter, this crisis could not come at a worse time. Even before the coronavirus outbreak, many of the UK’s manufacturing industries have been left debilitated by the government’s decision to leave the EU’s customs union. Today Make UK published figures that forecast a contraction in UK manufacturing of 2.1 per cent over the course of 2020.
“Even before the current situation the shocking drop in exports could not have come at a worse time ahead of potentially difficult trade talks where the clock is running down fast,” said Seumas Nevin, Make UK’s chief economist. His report gloomily points out the fading post-Brexit fortunes of the chemicals, pharmaceuticals and automotive industries.
“An industry already under huge pressure from coronavirus, doesn’t need another one by changing regulator at the end of the year,” adds the head of one trade body. He tells me that he is speaking to the government today to lobby for a Brexit delay.
China is surely the lesson in all this, and it is a grim lesson. The National Bureau of Statistics announced today that Chinese industrial output shrank 13.5 per cent in the first two months of the year — the fastest on record. Sales in retail fell by 20.5 per cent year-on-year.
It seems inevitable that the government will have to provide fiscal stimulus to bail out many more firms – although a Conservative Party already anxious about the scale of public investment in Rishi Sunak’s budget may grumble some more about increased interventionism. But they have little choice when the tool cupboard that used to be full of monetary policies has been left conspicuously bare by the financial crisis of 12 years ago.
What has been interesting, over the weekend at least, has been the intimation that a fall in demand may lead to a rise in the command economy – empty hotels may find themselves accommodating the overspill from crowded hospitals, while manufacturers are being encouraged to turn their engineering expertise to the production of ventilators as their orders dry up.
The Conservative Party may feel uncomfortable intervening so directly in the economy. But the UK is far from alone in facing such a decision. The question now is: will the UK play a leading role in coordinating an international response as it did in 2008? “What we are seeing now is a global crisis but we have a much more nationalist set of global leaders,” says Pat McFadden dubiously.
In any case, a global response would have to defeat that most intangible and dangerous adversary — one that is just as infectious as the coronavirus disease itself. It is something that cannot be quantified in pounds, plots or percentages. It is fear.