2021 April Economic Review

  • Global stock markets went up on average over the past three months, lifted by vaccine rollouts
  • The UK began gradually easing lockdown restrictions, although Covid-19 cases started to surge elsewhere in the world
  • Central banks and governments remained supportive of economies, leading to concerns that inflation may rise later in the year

During the past three months, a winter lockdown and a large-scale vaccine rollout in the UK provided some hope of a return to normality later in the year. Covid-19 infections fell steadily during this time, allowing the economy to begin to reopen throughout April. It was a different situation in Europe, which had to introduce tighter restrictions to control the virus. Meanwhile, both Brazil and India struggled with stubbornly high infection rates.

During this time, global stock markets performed well, on average, as investors anticipated higher economic growth later in the year. The UK, US and Europe delivered solid returns, although China’s stock market fell.

Economic update

At the beginning of February, the UK economy was facing two challenges: a nationwide lockdown and the implementation of a new trade agreement with the European Union. With pubs and restaurants, as well as non-essential shops, all closed, there was a steep slowdown in the consumer-facing services sector. The manufacturing sector remained open for business during the lockdown and saw a rise in activity despite disruption in supply chains.

By the end of April, there was a renewed sense of optimism in the UK. With the economy gradually reopening, activity in the services sector rebounded as pubs and shops were once again open for business. Meanwhile, the manufacturing sector experienced its steepest rise in new orders since 2013.

Overall, the economy performed better than expected over the past few months. Gross domestic product (the total value of goods produced and services provided in a country in one year) grew by a modest 0.4% in February, the most recently published data available from the Office for National Statistics. In addition, the Office for Budget Responsibility estimated that the UK economy will grow by 4.0% in 2021 and 7.3% in 2022, compared with a drop of 9.9% in 2020.

In Europe, a limited rollout of the coronavirus vaccine has resulted in a weakened outlook, as the economic tensions created by lockdowns remain unresolved. While the UK is witnessing a rebound that has exceeded some metrics, the eurozone economy has seen its growth expectations scaled back, with contractions occurring in the first quarter of the year.

Across the Atlantic, President Joe Biden and the Democrats followed through on election promises by successfully signing into law a $1.9trn package aimed at providing relief for people and businesses affected by the pandemic. The vaccine rollout in the US continued to progress, with nearly 140 million people having received at least one jab by the end of April.

Both Biden’s stimulus package and the vaccination programme have had a positive effect on the US economy. In March, consumer confidence reached its highest level since the pandemic began, mostly a result of Biden’s stimulus plan. Unemployment remains high, however, with around 17.4 million people receiving benefits.

China continued to be the strongest economy in the world, rising by 18.3% in the first three months of the year. Manufacturing output remained strong and accelerated in March following a slowdown during Lunar New Year celebrations. In Japan, there was strong demand from China for its technology exports, but the domestic economy has struggled after the government implemented new COVID-19 restrictions. However, there were concerns that the economic recovery was stalling in Japan, with government data released during the month showing that industrial output fell in December.

Interest rates were unchanged over the past three months. The Bank of England kept rates at 0.10% and the US Federal Reserve held its benchmark rate at 0.0-0.25%.

Market commentary 

Stock markets around the world were generally positive over the past three months, although there were a few bumps along the way. The key driver of markets during this period was once again the COVID-19 pandemic, with all eyes on the vaccine rollout around the world. The success of the vaccination programmes in the UK and US, caused investors to look ahead to the potential for a sustainable re-opening of economies. This was positive for companies that have struggled during the pandemic, such as those in the travel and leisure sectors.

Government bond yields, which move in the opposite direction of bond prices, went up in February and March, particularly in the US and UK, due to vaccination programmes and the expectations of US stimulus measures. This suggested investors believed higher economic growth would lead to higher inflation and rising interest rates.

As a result, technology Shares, which soared throughout 2020, fell sharply in February. Given that technology companies often borrow large sums of money to fuel their growth, rising interest rates would make it more expensive for them to borrow money, therefore affecting their bottom line.

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