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UK economy on course for V-shaped recovery, says Bank of England economist

UK economy is on track for a sharp V-shaped recovery thanks to a faster-than-expected rebound but “considerable” risks remain, according to the Bank of England’s chief economist.

Andy Haldane, who also sits on the Bank’s interest rate-setting committee, said the recovery in the UK and globally had come “sooner and faster” than expected.

In a webinar speech on Tuesday, Mr Haldane said the UK economy was benefiting from a rebound in consumer spending since lockdown restrictions have begun to ease.

He said: “It is early days, but my reading of the evidence is so far, so V.”

He added: “The recovery in both the UK and global economies has come somewhat sooner, and has been materially faster, than in the Monetary Policy Committee’s May Monetary Policy Report scenario – indeed, sooner and faster than any other mainstream macroeconomic forecaster.”

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But he said there was the risk of a “vicious cycle” in the economy if unemployment proves to be higher than expected and warned against a return to the mass youth unemployment seen in the 1980s.

He said: “Risks to the economy remain considerable and two-sided.

“Although these risks are in my view slightly more evenly balanced than in May, they remain skewed to the downside.

“Of these risks, the most important to avoid is a repeat of the high and long-duration unemployment rates of the 1980s, especially among young people.”

His comments come after the Bank recently said it now expects gross domestic product to tumble by 20% in the first half of the year, which is far less than the 27% it predicted in its May forecast.

But governor Andrew Bailey warned at the time against getting “carried away” by signs the recession may not have been quite as steep as it expected, with the Bank launching another £100 billion of quantitative easing (QE) to help boost the economy.

Mr Haldane was the only one on the nine-strong Monetary Policy Committee to vote against increasing QE in the June meeting.

In his speech, he said if the economy continues recovering on a similar path as lockdown measures ease further, then the loss in annual GDP could be far lower than first feared, at 8% against 17% forecast in May.

But he cautioned some of this may be down to pent-up demand, as well as the massive Government support for households and businesses through the scheme to furlough workers on 80% pay.

With nine million workers currently furloughed, he said there was a risk of soaring unemployment when the Government support measures end, which could impact the path of recovery.

Mr Haldane said he remained “open-minded” about more action to boost the economy.

Official figures also on Tuesday showed the economy shrank by more than first thought between January and March, down 2.2% – the largest fall since 1979.

Data has shown GDP contracted by a record 20.4% in April, but Mr Haldane said this was “ancient history” with the UK and global economy now fully in the recovery phase of the crisis.

Source: Express & Star

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UK economy set to return to growth in third quarter after coronavirus chaos

The UK economy’s coronavirus-induced downturn eased in June as key health indicators hit a four-month high, according to a closely-followed survey.

The UK’s economic output hit a measure of 47.6 on IHS Markit’s flash purchasing managers’ index (PMI), a four-month high.

Anything below 50 represents a contraction. But it was a stark improvement from May’s score of 30 after April’s lockdown saw the UK economy sink to an all-time low score of 13.8.

IHS Markit’s chief business economist, Chris Williamson, said it was a sign the UK looks set to return to growth between June and September.

“June’s PMI data add to signs that the economy looks likely return to growth in the third quarter, especially given the further planned easing of the lockdown from 4 July,” he said.

“June saw a record rise in the PMI for a second successive month,
confirming that the economy is moving closer to stabilising after the worst of the immediate economic impact from the Covid-19 pandemic was felt back in April.”

The pound was broadly flat against the dollar this morning to stand at $1.2462.

It follows earlier PMI showing the eurozone economy also hit a four-month high, led by France’s recovery.

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Manufacturers lead UK recovery

The manufacturing sector led the UK’s June recovery to post growth of 50.8. But the UK services industry slipped again, though not nearly as badly as it did in May. The industry posted a score of 47, compared with May’s 29.

The UK’s private sector also said confidence hit a four-month high in June as firms raised their expectations for the year ahead.

Easing of lockdown restrictions amid the coronavirus pandemic helped UK economic activity improve after its April collapse.

Uncertainties loom for UK economy

But industry figures told IHS Markit underlying demand remained “very subdued”, with cutbacks in spending holding back business activity.

And Williamson warned the UK economy’s longer term prospects are plagued by uncertainty.

“Demand clearly remains weak, as indicated by a further steep decline in backlogs of orders and an ongoing fall in new orders,” he said. “Many Covid-19 restrictions and social distancing measures will also need to stay in place until an effective treatment or vaccine is available, curbing demand in a variety of service sectors in particular.

“Uncertainty over recovery prospects and job prospects also mean demand for many goods, especially non-essential big-ticket items, is likely to remain weak for many months.”

Doubt over whether the UK can strike a trade deal with the EU before the Brexit transition period ends in December 2020 is also a worry for firms.

That led IHS Markit to forecast the UK economy to contract by 11.9 per cent this year before expanding by 4.9 per cent in 2021.

‘Solid start’ to UK economy’s recovery

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the June data suggests a solid rebound in GDP. But he warned gains will be harder to come by as the UK economy struggles to return to normal.

“A range of daily data are consistent with output rising significantly in June, after a sluggish start to the recovery in May,” he said.

“Nonetheless, the pick-up in activity partly reflects firms working through backlogs of work that accumulated during the peak of the pandemic. In addition, firms still are cutting headcounts rapidly.

“With restrictions to suppress Covid-19 likely to impose a hard ceiling on activity in certain sectors of the economy until a vaccine is found, and low levels of consumers’ confidence pointing to elevated saving, a full recovery in GDP in the second half of this year remains unlikely.”

Pantheon Macro stuck to its base case that GDP will stand five per cent below its pre-lockdown peak in the fourth quarter.

Thomas Pugh, Capital Economic’s UK economist, added that the pace of the UK economy’s recovery was pleasing.

“The economy seems to be recovering a little quicker from its nadir in April than we had first expected,” he said. “This trend should continue in July as bars, restaurants and cinemas will probably be able to open from 4 July and a reduction in the official social distancing measure from 2m to 1m would allow those firms that are open to serve significantly more customers. “

By Joe Curtis

Source: City AM

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UK economy still shrinking but pace of decline eases – PMI

UK economy remained in a severe downturn in May although the pace of the slump moderated from April’s crash and some companies benefited from the easing of coronavirus lockdowns around the world, a survey showed on Wednesday.

The IHS Markit Purchasing Managers’ Index (PMI) combining Britain’s huge services sector and manufacturing rose to 30.0 from 13.8 in April, up from a preliminary May reading of 28.9.

The index for services alone was also slightly higher than the preliminary figure but at 29.0 it was the second-weakest on record after April’s crash to 13.4.

Companies lost orders as clients slashed spending.

“Consumer demand also remained very subdued, with large areas of the service economy still in the planning stage of restarting business operations,” Tim Moore, economics director at IHS Markit, said.

Expectations rose modestly for a second month from March’s low. But businesses dealing face-to-face with customers were extremely concerned that social distancing measures would hold them back and push up costs.

On the positive side, some companies saw new orders from the Asia-Pacific region, where the recovery is more advanced, and from new online sales efforts.

But export orders continued to fall and some services firms said they were not taking work from abroad due to severe restrictions on travel.

Britain’s services PMI does not include retailers, who have been hardest hit by store closures since the March 23 lockdown, or many of the self-employed.

Writing by William Schomberg

Source: UK Reuters

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UK economy will take time to return to normal after lockdown – Sunak

British finance minister Rishi Sunak said on Tuesday it would take time for the economy to get back to normal even when the government’s coronavirus shutdown is lifted.

“It is not obvious that there will be an immediate bounce-back,” Sunak told lawmakers, saying the retail sector, for example, would still face restrictions when it reopens.

“In all cases, it will take a little bit of time for things to get back to normal, even once we have reopened currently closed sectors.”

Reporting by David Milliken and Andy Bruce

Source: UK Reuters

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UK economy to recover slowly from COVID – budget office

Britain’s economy is unlikely to have a quick bounce back as it recovers from its coronavirus shutdown which could have wiped more than 30% off output last month, the head of the country’s budget forecasting office said on Sunday.

Robert Chote, chairman of the Office for Budget Responsibility (OBR), said April was probably the bottom of the crash as the government is now moving to gradually ease its lockdown restrictions.

“We know that the economy, probably at its worst last month, may have been a third or so smaller than it normally would have been, in terms of output of goods and services and people’s spending,” he told BBC television.

“But that should be the worst of it.”

Britain, like many other countries, has shut down much of its economy to slow the spread of COVID-19.

Last month, the OBR said Britain’s gross domestic product could plummet by 13% in 2020, its biggest collapse in more than 300 years.

Chote said a quick, V-shaped recovery included in that report was only meant to be an illustrative scenario to show the hit to the public finances.

“In practice I think you are likely not to see the economy bouncing back to where we would have expected it otherwise to be by the end of the year, on that assumption, but instead a rather slower recovery,” Chote said.

As well as the pace of the lifting of the lockdown, the speed of the recovery would depend on how cautious consumers remained and how companies adjust to changes in the economy such as more demand for online retailing and less for restaurants.

Chote said Britain would not necessarily have to return to severe public spending cuts to cope with the debt surge that will come from its response to the coronavirus crisis.

Key factors include how much permanent damage the economy suffers, the level of interest rates on public debt – which are currently rock-bottom – and how much the country wants to spend on health and other services.

“But a post financial crisis-style, extended period of austerity is not a done deal,” Chote said, adding tax increases were another option.

Prime Minister Boris Johnson has said he will not lead Britain into a new period of austerity after previous Conservative-led governments sought to fix the public finances by cutting spending in many areas of public services.

Writing by William Schomberg

Source: UK Reuters

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Coronavirus: UK economy shrinks two per cent in first quarter of 2020

The UK economy shrank by two per cent in the first three months of 2020 due to the impact of coronavirus, official GDP data showed today.

The slump showed the UK economy’s contracted at its fastest rate since the height of the financial crisis in 2008.

The lockdown, which started on 23 March, saw the UK economy shrink a record 5.8 per cent that month alone.

And April’s data is likely to be far worse for UK GDP growth. Almost all shops except supermarkets and pharmacies remain shut in the coronavirus lockdown. And millions of workers are furloughed, with chancellor Rishi Sunak extending the job retention scheme to October.

UK GDP shrank in all the economy’s key sectors over the quarter, the Office for National Statistics (ONS) data showed.

The services sector suffered a record 1.9 per cent decline, the production industry posted a 2.1 per cent slump and there was a 2.6 per cent drop in construction.

March suffers record hit to UK GDP

Those sectors suffered their biggest hits in March as the UK economy shrank a staggering 5.8 per cent. All sectors were badly hit, though services posted the worst drop, a decline of 6.2 per cent.

Jonathan Athow, deputy national statistician for economic statistics, said: “With the arrival of the pandemic nearly every aspect of the economy was hit in March, dragging growth to a record monthly fall.

“Services and construction saw record declines on the month with education, car sales and restaurants all falling substantially.

“Although very few industries saw growth, there were some that did including IT support and the manufacture of pharmaceuticals, soaps and cleaning products.

“The pandemic also hit trade globally, with UK imports and exports falling over the last couple of months, including a notable drop in imports from China.”

CBI: Government stimulus crucial to UK economy recovery

The CBI’s chief economist, Rain Newton-Smith, warned the full impact of the coronavirus lockdown is still to come.

But she pointed to government measures such as the extended job retention scheme, and loans for small businesses, as being crucial to the UK economy’s eventual recovery.

“The range of financial support for businesses and workers provided by the government has been a lifeline for many firms so far,” she added. “These schemes are critical in keeping companies afloat and they will need to adapt as the economy restarts.

“Reopening our economy will be a gradual, complex process. The Ggovernment’s new guidance has helped, giving businesses some flexibility for their individual circumstances. Ultimately, keeping health at the heart of a recovery plan will be key to sustaining an economic revival.”

BCC: UK facing coronavirus recession

The British Chambers of Commerce said the second quarter will likely see UK GDP plunge by a worse margin. A consecutive quarter of decline would signal a full-blown recession.

The BCC’s head of economics, Suren Thiru, said: “The speed and scale at which coronavirus has hit the UK economy is unprecedented. [It] means that the Q1 decline is likely to be followed by a further, more historically significant, contraction in economic activity in Q2.

“While a swift ‘V-shaped’ economic revival as restrictions are lifted may prove too optimistic, government support can play a vital role in avoiding a prolonged downturn. The extension of the furlough scheme was a crucial first step, but more needs to be done to ensure that the right support is in place to deliver a successful restart of the economy.”

UK economy enters ‘freefall’

Capital Economics’ chief UK economist, Ruth Gregory, warned March’s record fall was only the tip of the iceberg.

“March’s GDP figures showed that the UK economy was already in freefall within two weeks of the lockdown going into effect,” she said. “And with the restrictions in place until mid-May and then only lifted very slightly, April will be far worse.

“The gradual lifting of containment measures suggest that April will probably prove to be the low point. Nevertheless, we think that it will be a long time before activity returns to pre-crisis levels.”

The dour outlook for the UK economy pushed the FTSE 100 lower today.

London’s blue-chip index fell almost one per cent this morning. However, the two per cent fall in GDP was better than a forecast drop of 2.6 per cent for the UK, Avatrade analyst Naeem Aslam said.

But he warned that “the worst is still about to come”.

“The question is how the Bank of England is going to look at this economic data,” Aslam said. “And if they will continue to rule out the negative rates and if they will expand their loose monetary policy further. But currency traders are more focused on forward-looking factors such as the Prime Minister’s three-stage plan to open the economy.”

By Joe Curtis

Source: City AM

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UK economy will not be back to work until July at very earliest – Raab says

The British government said non-essential retailers would not go back to work until June at the earliest while other sectors will not go back to work until July at the earliest, Foreign Secretary Dominic Raab said on Monday.

“There’s the other changes for things like non essential retail and people going back to school, particularly primary school, which won’t start until the earliest on the first of June, subject to conditions,” Raab said.

“Starting from the 4th of July at the very earliest, those other sectors where they are inherently more difficult because people are mixing together and it’s difficult to maintain the social distancing, we wouldn’t be able to say … that we would start them at least until the 4th of July.”

Reporting by Guy Faulconbridge and Kate Holton

Source: UK Reuters

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UK businesses quick to adapt to threat of COVID-19 according to new research from Aetna International

50% of UK firms had issued a policy and over a third had offered remote working prior to working from home guidance from Government

With countries across the world now in lockdown due to the spread and risk of COVID-19, new research commissioned by Aetna International, conducted between 4 and 27 March and announced today, shows a majority of businesses in the UK had prepared and reacted to the growing threat pre-lockdown.

According to the research, by 11 March when the World Health Organisation (WHO) officially declared COVID-19 a pandemic, 83% of businesses had already taken some form of action to support employees. In the markets the research covered, this date was two to three weeks before local lockdown policies were put in place, and a third (31%) of businesses had already given employees the option to work remotely, and 44% had issued health tips to employees.

The research amongst office workers across four markets (UK, USA, UAE and Singapore) was part of Aetna International’s ongoing insights programme into issues affecting businesses, including the provision of mental and physical health support. According to the findings, larger businesses (those with 5,000 employees or more) were perhaps understandably quicker to respond to the global issue, with 44% issuing guidance on how they were dealing with the risk prior to the WHO announcement.

In the UK, prior to the government’s advice to work from home on 16 March, over a third (36%) of businesses had already offered this to employees, whilst over half (56%) had issued health tips to minimise risk and advice for self-quarantine.

A quarter of UK businesses had already banned all travel and 50% had issued a policy on how they were dealing with it, according to employees.

Richard di Benedetto, President at Aetna International, said: “The spread of COVID-19 across the globe has been rapid, and its impact on all our lives – both personally and professionally – has been significant. Despite the economic challenges facing many businesses, it is testament to the resolve of business leaders that they reacted so quickly to support their employees’ health and well-being.

“Whether through simple messages and tips, or bringing in remote working early, clearly they were doing what they could in unbelievably challenging times. As this complex situation continues to evolve, we will continue to assess how companies are adapting during this period of uncertainty, to ensure we are doing all we can to help them safeguard the mental and physical health and well-being of their employees.”

UK results breakdown from 4 March to 27 March:
In the UK, prior to the government advice to work from home on 16 March…

  • 81% had done something according to their employees
  • 58% had issued a message of concern to all workers
  • 50% had issued a policy on how they were dealing with it according to their employees
  • 56% had offered health tips for minimizing the risk and advice for self-quarantine
  • 36% had offered the opportunity to work remotely to all those concerned
  • 9% had provided access to private medical health checks to all employees
  • 25% had banned all travel
  • 23% had begun to implement reduced working times
  • 35% had suspended work-related events for large groups
  • 34% had asked those that have travelled to high risk areas to work remotely for 14 days

Research breakdown
Prior to the WHO officially declaring COVID-19 a pandemic:

  • 17% of firms across UK, UAE, US and Singapore had done nothing according to their employees
  • 42% of firms across UK, UAE, US and Singapore had issued a message of concern to all workers
  • 42% of firms across UK, UAE, US and Singapore had issued a policy on how they were dealing with it according to their employees
  • 44% of firms across UK, UAE, US and Singapore offered health tips for minimizing the risk and advice for self-quarantine
  • 31% of firms across UK, UAE, US and Singapore offered the opportunity to work remotely to all those concerned
  • 23% of firms across UK, UAE, US and Singapore had provided access to private medical health checks to all employees
  • 21% of firms across UK, UAE, US and Singapore had banned all travel
  • 30% of firms across UK, UAE, US and Singapore had begun to implement reduced working times
  • 31% of firms across UK, UAE, US and Singapore had suspended work-related events for large groups
  • 33% of firms across UK, UAE, US and Singapore asked those that have travelled to high risk areas to work remotely for 14 days

After the WHO officially declared COVID-19 a pandemic:

  • 12% of firms with over 5,000 employees across UK, UAE, US and Singapore had done nothing according to their employees
  • 48% of firms with over 5,000 employees across UK, UAE, US and Singapore had issued a message of concern to all workers
  • 44% of firms with over 5,000 employees across UK, UAE, US and Singapore had issued a policy on how they were dealing with it according to their employees
  • 48% of firms with over 5,000 employees across UK, UAE, US and Singapore had offered health tips for minimizing the risk and advice for self-quarantine
  • 34% of firms with over 5,000 employees across UK, UAE, US and Singapore had offered the opportunity to work remotely to all those concerned
  • 19% of firms with over 5,000 employees across UK, UAE, US and Singapore had provided access to private medical health checks to all employees
  • 22% of firms with over 5,000 employees across UK, UAE, US and Singapore had banned all travel
  • 25% of firms with over 5,000 employees across UK, UAE, US and Singapore had begun to implement reduced working times
  • 34% of firms with over 5,000 employees across UK, UAE, US and Singapore had suspended work-related events for large groups
  • 24% of firms with over 5,000 employees across UK, UAE, US and Singapore had asked those that have traveled to high risk areas to work remotely for 14 days

Results from 4 March to 27 March:

  • Up until 27 March, only 12% of firms across UK, UAE, US and Singapore had done nothing according to their employees
  • Up until 27 March, 42% of firms across UK, UAE, US and Singapore still hadn’t issued a message of concern to all workers
  • Up until 27 March 46% of firms across UK, UAE, US and Singapore still hadn’t issued a policy on how they were dealing with it according to their employees
  • Up until 27 March, 43% of firms across UK, UAE, US and Singapore hadn’t offered health tips for minimising the risk and advice for self-quarantine
  • Up until 27 March, 62% of firms across UK, UAE, US and Singapore hadn’t offered the opportunity to work remotely to all those concerned
  • Up until 27 March, 81% of firms across UK, UAE, US and Singapore hadn’t provided access to private medical health checks to all employees
  • Up until 27 March only 33% had banned all travel
  • Up until 27 March, 75% of firms across UK, UAE, US and Singapore hadn’t begun to implement reduced working times
  • Up until 27 March, 53% of firms across UK, UAE, US and Singapore hadn’t suspended work-related events for large groups
  • Up until 27 March, 64% of firms across UK, UAE, US and Singapore hadn’t asked those that have travelled to high risk areas to work remotely for 14 days

Source: RealWire

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Philip Hammond calls for UK economy to reopen

The former Chancellor Philip Hammond has called the government to ease the lockdown measures and reopen the UK economy.

Hammond told the BBC’s Radio 4’s Today programme, “The reality is that we have to start reopening the economy.

“But we have to do it living with Covid.

“We can’t wait until a vaccine is developed, produced in sufficient quantity and rolled out across the population.

“The economy won’t survive that long.”

Peel Hunt has just released the results of its COVID-19 survey of investors, corporate managers and other UK finance professions (banking/legal/accounting), revealing the City’s views on what shape the recovery will take, how investor habits and priorities will change post lockdown, and the outlook for corporates in a post-COVID market.

Source: London Loves Business

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UK economy suffers unprecedented slump amid coronavirus lockdown

The UK economy suffered an unprecedented blow in April as the coronavirus lockdown choked off demand, according to a closely watched gauge which slumped to its lowest level since records began.

The IHS Markit/Cips composite purchasing managers’ index (PMI) crashed to a reading of 12.9 in April. This was the worst score since the survey began more than 20 years ago.

April’s reading was even worse than analysts’ dire predictions and well below March’s record low of 36. A score of below 50 indicates contraction. The worst score seen during the financial crisis was 38.1.

The data was “eye-watering,” said Ruth Gregory, senior UK economist at Capital Economics. She said the lockdown “has pushed the economy into a recession of unprecedented speed and depth”.

The unprecedented collapse in the PMI highlights the devastation coronavirus is wreaking on the UK economy. It is one of the most up-to-date economic indicators.

Lockdown measures, which were last week extended until early May, have caused businesses to close and demand to evaporate as people stay at home and lose their jobs.

Chris Williamson, chief business economist at data firm IHS Markit, said the PMI reading was consistent with UK GDP falling at a rate of seven per cent per quarter.

Such an economic contraction has not been seen since World War II. Yet many groups, such as the UK’s budget watchdog, predict a steeper fall in GDP.

Coronavirus batters UK services sector

Britain’s enormous services sector bore the brunt of the pain. The coronavirus lockdown sent the sector to its worst month since records began in 1996.

“Business closures and social distancing measures have caused business activity to collapse at a rate vastly exceeding that seen even during the global financial crisis,” said Williamson.

More than 80 per cent of UK services providers reported lower business activity in April. Duncan Brock, group director at Cips, the Chartered Institute of Procurement & Supply, said this “compared with 38 per cent during the worst single month of the global financial crisis”.

Around half of all firms’ purchasing managers reported lower numbers of staff in April.

However, numerous respondents said this was due to their firm using the government’s job retention scheme that pays 80 per cent of a worker’s wages if they temporarily stop working, or “furloughed”.

The government has rolled out a number of very large support schemes for the UK economy that seek to limit the damage from coronavirus.

Dire figures will spark debate among policymakers

Yet April’s PMI data will raise questions about whether support is getting to businesses quickly enough. There have been a number of complaints about the coronavirus business interruption loan scheme (CBILS) for example.

Williamson said the dire performance of the UK economy in April will also spark debate about the length of the lockdown.

The cabinet is reportedly split about when to start lifting stay-at-home orders and letting people go back to work.

“Hawks” such as chancellor Rishi Sunak and cabinet secretary Michael Gove arguing that the economy needs to be returned to normal quickly.

On the other side are the “doves”. These include Prime Minister Boris Johnson and health secretary Matt Hancock, who fear the damage a second wave of infections could do.

By Harry Robertson

Source: City AM