Are we about to experience a ‘roaring 20s’?

Chris Salih 26/02/2021 in X Markets & economies

“The UK economy is poised like a coiled spring”. Those were the words of the Bank of England’s chief economist Andy Haldane, when talking about the potential economic bounce back in the coming months, as people look to spend their savings after lockdown.

Haldane said that if recent trends continue, the savings ‘nest-egg’ of the nation would be over £250 billion by July – just in time for people to enjoy a life without restrictions if the vaccine rollout goes to plan.

If history is anything to go by, we could indeed be on the cusp of a new ‘roaring 20s’. James Thomson, manager of Rathbone Global Opportunities, said: “The end of our house arrest is coming, and history tells us that demand can be very strong following sombre periods — recessions, wars, terrorism, and pandemics. The Roaring Twenties followed the Spanish flu and World War I, huge crowds gathered to celebrate the end of social isolation and we saw the birth of modern consumerism. When you combine these trends with huge stimulus, low interest rates and reflation-driven policies, you could have a multi-year expansion.”

Niall Gallagher, manager of GAM Star Continental European Equity, echoes this view. “I’m optimistic for a significant rebound in economies in 2021, with pent up demand for tourism, air travel, hospitality, autos, exhibitions and certain parts of retail,” he said. “There will be increased demand and decreased supply for air travel in the second half of the year, resulting in higher prices and bigger margins for the surviving airlines. Some pilots and planes need to be recertified after such a long period on the ground and capacity will take time to come back.”

But the question on everybody’s mind is, what will people actually do when lockdowns are eased? “Virtually everyone will want to rush out and throw their money around like confetti, enjoying all the things that we’ve missed out on over the past year,” said Julian Chillingworth, chief investment officer at Rathbones, “yet it takes more than desire to make a transaction.”

Why is this? Firstly, many people have had a really tough time during the pandemic, either being made unemployed, being furloughed or worrying about how secure their livelihood is. These people may want to jet off on a sun-drenched holiday, go out to restaurants, pubs and theatres, but they may not have the cash to do so. A number of businesses have also been forced to close, so demand may well also outstrip supply. This is turn could cause prices to rise, as Niall Gallagher suggested, and put some people off who may otherwise have been happy to part with their cash.

Chris Ford, manager of Sanlam Artificial Intelligence, believes some behaviours from the pandemic will remain even when restrictions are lifted – which could dampen spending. “For consumers, we judge that there is pent-up demand for travel and a broader need to engage in physical meetings with friends and family again. But, by the same token, where lockdown has introduced new and better ways of doing things, we would expect that many people will be much less willing to revert to the ‘old’ ways, even when the vaccine has been rolled out,” he said. “In our own industry, the days when a fund manager or analyst would travel 500 miles to see one company are probably over, for example. In terms of where the AI theme evolves from here, we would expect travel/ticketing, logistics and warehouse management to provide a whole raft of opportunities for AI deployment as economies reopen.”

And not everyone is so positive about the immediate outlook. Ariel Bezalel, manager of Jupiter Strategic Bond, commented: “I think the roaring 20s has been overdone. It’s different today than how it was in the 1920s. Debt was only 20% of GDP for starters and the demographics were more favourable. There were also some powerful inventions that helped improved productivity.”

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