By Ian McConnell

Business Editor

A TOP Scottish economist flagged “light at the end of the tunnel” yesterday as news that a Covid-19 vaccine developed by Pfizer was more than 90% effective boosted hopes of a return to normality and propelled global stock markets higher.

Jeremy Peat, a former chief economist at Royal Bank of Scotland, declared the “positive vaccine story” meant unemployment and business failures would ultimately be lower than they would be without such news.

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He added: “This news should demonstrate, as noted by the First Minister [Nicola Sturgeon], that there is light at the end of the tunnel and hence boost household and business confidence.”

The UK’s FTSE-100 index of leading shares closed 276.27 points or 4.7% higher at 6186.29, having touched an intra-day peak of 6258.31.

Wall Street was also showing sharp gains, with the Dow Jones Industrial Average up nearly 5% in afternoon trading in New York.

Mainland European stock markets also surged on the news the vaccine developed by US group Pfizer and German company BioNTech had so far proved more than 90% effective in phase three trials and could be available by the year-end.

Pfizer executive chairman Albert Bourla declared: “Today is a great day for science and humanity.”

The Pfizer/BioNTech vaccine is one of several for Covid-19 coronavirus in late-stage trials.

Mr Peat said: “What a marvellous change to be able to be positive about the implications of key developments for the global, UK and Scottish economies. First came the defeat of President Trump, and now the news that a 90% effective vaccine is likely to be available sooner rather than later. The hat-trick of positives would be completed by agreement on a UK/EU trade deal.”

Graham Campbell, executive director at Edinburgh-based Saracen Fund Managers, said: “This is the good news that the market has been waiting for and gives hope that the economy can restart and we can get back to life as normal.”

Colin McLean, managing director of SVM Asset Management, said: “Compressing a process that usually takes five to 15 years into under one year is a remarkable achievement for science. But roll-out of a vaccination programme is complex and investment managers are typically working on the basis that there is no silver bullet.

“That is, the virus itself may evolve and the effectiveness of the vaccine may vary between different portions of the population, or even according to ethnicity. Pfizer suggests that the study involves broad coverage. Pfizer will still require a safety hurdle to approval, which is expected in the third week of November. Given that the disease only mildly affects many, the burden of proof on safety is high.”

He declared the vaccine news had “arrived on an already optimistic stock market”.

Mr McLean added: “The US election results – retaining a conservative majority in the Senate – appear to put some restraint on tax increases whilst also likely bringing more stability.”

Mr Peat said: “There are at least three ways in which the anticipated arrival of an effective and broadly available vaccine should have a positive effect on all economies.”

Citing a likely boost to household and business confidence, he declared: “That should help to sustain consumer expenditure and encourage business investment during the remaining dark days. The global and domestic economies could start edging forward rather than retrenching any further.”

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Mr Peat added: “Secondly, there will be the impact of an expectation that there can be a return to ‘business as usual’ in the not-too-distant future. Businesses, large and small, will anticipate better days ahead and therefore strive to stay in existence in anticipation of a rosier future. Some should even make preparations for the economic recovery, and banks should be more prepared to support businesses rather than being tempted to pull the plugs.

“These businesses should also be more inclined to maintain employment, especially given the continuing support provided by the Chancellor. Taking all this together must mean fewer business failures and lower unemployment than would have been the case without a positive vaccine story.”

Looking further forward, he flagged his view that “this will all have positive repercussions for the projected public finances”.

He said: “Finance ministers will be able to anticipate a tapering down of the costs of Covid-mitigating measures significantly earlier than they must have feared. Forecasts for tax revenues should also be hiked, on the grounds that both business revenues, and profits, and household incomes look set to outperform prior expectations. The Bank of England and its global counterparts will see a potential end to their heroic, but nevertheless scary, efforts to pump more and more liquidity into our failing economies.”

Mr Peat emphasised “tough times still lie ahead, some businesses will fail, unemployment will rise further and the public finances will be more strained than for decades”. However, he added: “Provided the vaccine stories are verified, then some light is definitely visible through that dark and gloomy economic tunnel.”

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Mr Campbell believes the vaccine news could mean investors are “more inclined to look at more economically sensitive businesses that are on bargain-basement valuations and [be] less favourable on some of the relatively expensive consumer and growth names such as Reckitt Benckiser or Netflix, Peloton, Zoom that have benefited from the lockdown conditions”.

He added: “It’s no surprise to see businesses like airlines and property companies leading the recovery today.”

Mr McLean said: “The Pfizer study has at least focused on preventing infection with the virus, whereas a number of other trials are focusing more on symptoms. It appears that the UK has an agreement with Pfizer for around 30 million doses. With two doses required, and likely wastage, that might cover around 12 million people. There is a global target of 1.3 billion doses in 2021.

“News on other vaccines such as Oxford/AstraZeneca [is] also due soon. Each country will likely decide on priorities such as high-risk groups or key workers. For mass vaccination programmes, there is always a risk that uptake is low and it may take a lot of public information to encourage younger people to participate.”

Mr McLean flagged a likely rise in UK unemployment with lockdown restrictions kept for several months.

He said: “We expect lockdown restrictions to be retained in some form for several months to come in US, UK and Europe and economic activity will remain severely compromised in 2021. UK unemployment is likely to rise because of this. Consumer preferences have been changed by the lockdown experience, and we can expect online businesses to retain their higher levels of activity in future."

Mr McLean added: “In general, we believe this year has accelerated trends to online business that were already in place and many legacy businesses will not see the inflation that might transform them. Some businesses, such as Zoom, do not appear to have great barriers and face competition. Valuations may be easier to sustain where a brand is dominant and has secured that with operating efficiencies, such as Amazon. Investors are likely to bear in mind there is a risk of future pandemics and global health risks, encouraging supply chains to shorten and businesses to build-in resilience and sustainability.”