AUS
NZ
UK
CA
USA
IND
Terming the idea of an extension of the current pandemic induced lockdown as unrealistic, the former Governor of the Bank of England Mervyn King stated that should such a decision be taken, it could lead to a rebellion of the masses against the government. While also concurring with the government’s decision to lockdown the country given the threat of the pandemic to the general public, he stated that the government must now work on an effective ‘exit strategy’ so as to come out of this situation at the earliest. He suggested that a gradual withdrawal is one option that the government should look into and the people who have already healed and have developed immunity should be allowed to go to work so that a gradual increase in business activity in the country may take place. Mervyn King has been the governor of Bank of England during the 2008 financial crisis and had been an instrumental figure in the rolling out of the bail out package for the banks during that time.
The former governor’s statement comes on the heel of the UK government reprimanding the banking sector for delaying the implementation of its various stimulus packages which are designed to protect the small and medium sized businesses in the country from collapsing. The lockdown which has already put millions of jobs at risk and the economic activity of the country to a standstill, any idea of elongating further could cause substantial damage to the British economy. The former governor on the subject of unemployment said that it will have a harmful effect on the psychology of the people who would not be able to feed themselves and their families and could lead to massive discontent in the country. He also noted that in all the announcements being made by the government regarding the stimulus being rolled out to help the average citizens and the businesses of the country, not much is being said and done for the large number of self-employed people who also constitute a significant portion of the working population of the country. Other than that, the lockdown is also affecting the future of the country in more ways than one. The school and university exams have being cancelled due to the lockdown which is putting the careers of the country’s future at risk, which the former governor believes will have far reaching consequences.
Ever since the pandemic first emerged in China and had not even entered the British shores it had started impacting British businesses very badly. The British airline industry paid a very heavy price, it had to cut down a significant number of its flights to and from China, which notably was a significant revenue churning sector. The automobile and engineering companies also reported production halts due to non-arrival of components and other intermediate goods that were being sourced from China. This had already made a lot of people sit out of employment then, and as the virus entered the shores of the country the situation became catastrophic. Given what the state of affairs are at this time, it is very difficult to predict how long it will take before a lid is put on this virus. This also puts an uncertainty on how long the lockdown conditions in the country would need to be elongated.
The larger companies are however, better prepared to adapt to the situation than their smaller counterparts. These companies have deep pockets and also have deep pocket investors who will be willing to bail them out under more deteriorating conditions. Despite of that, several of these companies have already initiated cash conservation measures and have already announced roll back of the dividend payments. Some companies have already laid off temporary staff and other have been implementing strict austerity measures. Also, the Bank of England on 31st of March directed the banking industry to roll back dividends worth £8 billion as well as millions of pounds worth of executive bonuses so that the funds preserved can be channelized towards providing the much needed assistance to the other industries. The central bank’s move just days after a banking stress test conducted by Threadneedle Street showed that the banks would struggle without a cut in their bonus payouts and executive payments. The central bank also directed the insurance industry to take a relook at staff bonuses and dividends so as to conserve cash to protect policy holders against claims which is expected to rise this year disproportionately.
The former governor’s statements thus are directed more towards the smaller and weaker sections of the business community and not the stronger ones. These businesses were the first to receive the full blow of the pandemic and in need of maximum assistance and that too on an urgent basis. Every passing day this assistance is delayed these businesses seem to move an inch closer towards catastrophe. Currently, the banking industry seems to be in a labyrinth which is making it difficult for them to process the loans at the earliest. The Chancellor of the Exchequer and the Bank of England are reportedly taking immediate steps to address the issues leading to the delay so that funds reach their intended recipients at the earliest. This by far is the most challenging issue that has cropped up in the past few days since the stimulus announcements were made by the chancellor.
The pandemic has already put the British economy in a very fragile state. It is difficult to predict how long it will take for the situation to become normal. Already a significant number of people are reporting as unemployed and as the months pass by a significant more are expected to come out. The discontentment in the minds of people is estimated to increase, which could lead to undesirable consequences for the country. The former governor’s advice in this regard seems to provide a viable solution. Allowing partial withdrawal will give hope to the people and confidence to the health authorities. Encouraging businesses to take initiative to find innovative solutions and increase their activity levels could possible lead to a rapid recovery of the economy and scaling up of employment levels in the country. The former governor also advised the chancellor that if the government has forced a shutdown then it is the responsibility of the government to take care of its citizens and ensure adequate cash flow to all businesses big and small.
Disclaimer
The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. The above article is NOT a solicitation or recommendation to buy, sell or hold the stock of the company (or companies) under discussion. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site.
