Scottish Investment Trust : Will lockdown blues prompt a consumer splurge?

January 2021 has it all: the Christmas blues (and bills), unpleasant weather, short days - plus the challenge (for some) of New Year's resolutions. Throw an even stricter national lockdown into the mix, and it is little wonder that the people crave a little optimism. Across the UK, restrictions on normal life have been ever-present since March 2020, and in some areas, intensive lockdowns - banning everyday activities - have become the norm over the past 10 months. The nature of our novel enemy means that following the news cycle, which is often designed to be hyperbolic, can be overwhelming: new strains, vaccine efficacy and never-ending metrics (both good and bad) dominate our screens.

However, amid all this pessimism, we believe the road back to normality is coming into clearer focus. The UK appears poised to deliver one of the quicker inoculation programmes, with almost five million doses of the vaccine administered in the UK so far. The fight against Covid has not yet been won, but there is cause for optimism about both public health and the economy.

Having suffered under restrictions for so long, consumers are eager to return to a more usual routine, be it a simple a day of shopping, socialising with friends, eating out or holidaying abroad.

From an investor's perspective, these observations in human behaviour are evidence of pent-up demand. Discretionary spending is a key indicator of consumer confidence. Travel-related companies are reporting a surge in advance reservations, particularly from the elderly, with coach-holiday bookings already 185% higher than they were in 2020, and many extending trips from one week to two. These figures are reflective of a keenness to resume lives as we knew them, and younger generations are unlikely to be different.

Such a surge in demand will probably cause inflationary pressure. This may benefit the sectors of the market sometimes defined as 'value', and should include some of the most unloved companies that have suffered during the pandemic. Of course, there are likely to be setbacks along the road to recovery, but we believe that our patience will be rewarded.

Please remember that past performance may not be repeated and is not a guide for future performance. The value of shares and the income from them can go down as well as up as a result of market and currency fluctuations.

The Scottish Investment Trust PLC has a long-term policy of borrowing money to invest in equities in the expectation that this will improve returns for shareholders. However, should markets fall, these borrowings would magnify any losses on these investments. This may mean you get back nothing at all.