18 October 2021

Things are never straightforward – not even a recovery

Despite production output increasing in August 2021, investors are still sceptical.

The news that our Gross domestic Product (GDP) rose by 0.4% month on month in August should, on the face of it, be taken as a positive sign. It brings the value of our economy back to within a whisper of where it was before the pandemic struck, having shrunk by 25% in the interim. But these statistics were hardly greeted with enthusiasm. It wasn’t that they disappointed. Rather, economists believe this pace of recovery cannot be sustained, given what is happening elsewhere. 

As an example, Maersk are diverting their ships away from the Port of Felixstowe because containers are piling up as there are not enough drivers to deliver them on to their final destination. Port congestion has become a serious issue. This is always a busy time of year for Felixstowe as goods arrive in anticipation of increasing demand in the run up to Christmas, but fears are growing that there will be very real shortages over the festive season.

These concerns weighed upon sentiment, with the FTSE 100 Share Index losing ground. News that employment levels had returned to pre-pandemic levels didn’t help much either, mainly because labour shortages are approaching crisis levels. While the ending of the furlough scheme may provide some respite in the short term, the fact remains that in many sectors – like haulage – there are simply insufficient trained workers, which is helping to drive up wage bills.

In turn this is leading to worries that the rise in the cost of living may be not as transitory as has been expected, which could mean that an increase in interest rates may be brought forward by the Bank of England. Many now view such a move as inevitable, but it could mean that mortgage costs rise, which in turn would dampen consumer demand at a time when the high street needs all the support it can get. Little wonder that investors are becoming that little bit more risk averse and fighting shy of markets.

Of course, this could all blow over. The fuel crisis appears to have been consigned to history, after all, but it does look as though some areas of the labour market are likely to be starved of sufficient new recruits for long enough to create real problems. This is not just a problem for hauliers and those in the hospitality sector. Agricultural and food processing workers are also needed. We may be short of a few items for this year’s Christmas celebrations, perhaps even turkeys, but at least we should be able to enjoy the festivities properly, unlike last year.

Brian Tora, Associate

Understanding Finance

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