Is Pent-up Demand the way back to prosperity?

As investors look towards the rest of the year, this resilient economic backdrop coupled with positive vaccine news has brought another pillar of economic forecasts into focus — pent-up demand. Brian Tora explores in our latest article.

The first quarter reporting season is now well underway, with Europe’s biggest bank, HSBC, and oil giants BP and Shell disclosing their figures, along with a raft of other well-known names. Full year results are also being released from the likes of Sainsburys and Whitbread. This latter bastion of the hospitality sector unsurprisingly showed a loss, with hotel occupancy at Premier Inns down significantly. Not that the accompanying statement was all doom and gloom.

Certainly, there are modest signs of encouragement as recent lock down easing is stimulating more economic activity. Indeed, Whitbread announced that it was gearing up for a boom in staycation bookings as further lifting of restrictions come into force. While only 40% of pubs have been able to open their doors to customers, those able to accommodate people outside are reported to be busy. In an interesting development, it appears that finding staff has become a problem, with successive lock downs encouraging workers to leave the hospitality industry and Brexit discouraging Europeans from coming here.

So, it does look as though consumers are prepared to play catch up once the opportunity to go out and spend is restored. There will be those areas where change is inevitable, though. The City of London Corporation has announced plans to convert redundant office space into homes. During this decade they expect to expand the housing stock within the Square Mile by around 20%, as well as create more inventive business spaces for start-ups. It all goes to show that good things can come out of adversity.

All in all, there is a great deal for investors to get their teeth into as the weeks unfold. And this is before we look across the Atlantic, where the Federal Reserve Bank has been pronouncing on interest rates and President Biden introduces tax changes. As it happens, the US reporting season has been suggesting that companies have been doing rather better than expected, though doubtless boards have been carefully managing expectations because of the uncertainties created by the pandemic.

Markets meanwhile are doing comparatively little. The FTSE 100 Share Index has struggled to hold on to the 7000 level it breached recently, while US shares continue to make new highs. Back home, political shenanigans may have knocked Covid-19 off the front pages temporarily, but you only have to look at the dire situation in India to realise that this global pandemic is far from over. Let’s hope for better news on the economic front as restrictions are eased into the summer and the world-wide vaccination programme accelerates.

Brian Tora, Associate

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