An investment specialist hopes the cut to interest rates and further fiscal stimulus from the Budget will help prevent the economic impact of the coronavirus turning into a self-fulfilling downward cycle.
Independent financial advisor Mike Pole hoped the Bank of England’s decision to cut interest rates from 0.75 per cent to 0.25 per cent would help discourage business owners and home-owners from holding back on spending.
It comes after Chancellor Rishi Sunak said his Spring Budget would help make the 海角视频 one of the best placed economies in the world to deal with the outbreak – and hopefully bring stability and security to the country in this time of crisis.
Mr Pole, who runs Pole Arnold, in Leicestershire, said it was in the lap of the Gods how long the coronavirus would play a part in day-to-day business decisions.
But he felt the investment markets would bounce back from their recent shock falls – advice he has been sharing with his 400 clients – even though if was hard to say whether that bounce back was in two months time or two years.
He said: “It definitely affects our clients, some of whom run businesses or are retired or reaching retirement. Their assets, whether in a business or their pension, are affected.”
He said that when it came to business confidence, the issue was not unlike people hoarding toilet rolls and stripping supermarket shelves bare.
He said: “Even though there’s no issue if people just carry on their day-to-day routines, it’s that extra 2 per cent of the population that create the problem.
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“So, in the business world fears about what’s around the corner lead some businesses to take actions – or inactions – that become self-perpetuating.
“So if you need to invest in a £200,000 machine you might chose not to invest, because you don’t know if the demand will be there in a month.
“So the consequence might be that the company that makes the machines might have to lay people off and the steel stock-holders that supply that company have to lay people off because they are not selling enough steel.
“So people are losing work and haven’t got as much in their pockets to spend so then the local shopkeeper is affected. That’s the impact of just one business deferring investment.
“That’s one of the reasons such quick action has been taken to cut interest rates. A lot of businesses have debt so that should mean their costs go down. This will help them bridge the gap if those companies aren’t selling those machines – to provide an incentive to help companies continue to make investments.
“The other point is it’s trying to put more money in your pocket and my pocket because we will be paying less on our mortgages – so that’s an extra £50 a month, say, to spend and keep the wheels of the economy turning.
“If there are slight investment decisions deferred we will be OK. If people can’t see the wood for the trees and stop investing that could have a longer-lasting negative impact.”
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The Government had been obliged to try and stimulate the economy, he said, to prevent the coronavirus leading to negative growth and a drop in taxes while state spending goes up.
He said: “If all the companies in the 海角视频 see their profits half, the revenue to the Exchequer goes down. If people lose their jobs, income tax and national insurance go down.
“We are in a financially stronger position that other countries around the world, but Government overheads are pretty much fixed. It all depends on how long the coronavirus goes on.
“If we come to April, May, or June and the world has a handle on it and it’s contained, or there’s a vaccine, the short-term effect might be a blip. But right now markets are concerned they can’t see the end.”
He said the investment and exchange markets hated uncertainty but after the longest bull market in years, an adjustment was always likely – although not quite on the current scale.
In the last few days and weeks those markets, he said, had shifted from greed and business-as-usual to fear.
He said: “When they are in that zone, all they look at is the bad news – markets are over-reacting because of the fear of what might happen.
“So long as the long-term investors are willing to wait, we could see the markets bounce back.”
He said there were similarities with the 2008 banking crisis, but felt that meltdown was far worse than the current situation.
He said: “We continue to invest in our business. We have been looking for two new advisors to join us and will continue to do that because I firmly believe that we will get through this.”