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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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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

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UK must beef up coronavirus economic response, says think tank

The UK government must take “further radical policy steps” to tackle the economic fallout from coronavirus, a think tank has said, amid huge uncertainty over the length of the outbreak.

The Resolution Foundation praised the government’s response so far, which includes £330bn of lending and a scheme to pay furloughed workers’ wages.

Yet it said more must be done to ensure the economy recovers from the coronavirus slowdown, including a beefing up of its job retention scheme and asking the Bank of England to directly finance government spending.

The report came amid dire warnings about the UK economy, which could contract by as much as 35 per cent in the second quarter according to the Office for Budget Responsibility.

The Resolution Foundation today said a ‘V-shaped’ recovery with about a three per cent hit to GDP over the medium term is possible if a lockdown stays in place for three months.

Yet it said that “if a six or 12-month lockdown is necessary, it could mean a far longer recovery of between two and five years, and a permanent GDP hit of five to seven per cent”.

The report notes that a six-month lockdown could result in unemployment averaging 5m in 2021 as the government’s job retention scheme is phased out. The Foundation said this would “far exceed” the peaks seen during the 80s and 90s recessions.

The Resolution Foundation therefore urged reforms to the scheme, which pays 80 per cent of people’s wages so long as they are furloughed. It said the government should ensure furloughed workers can return to work part-time if this can be done safely.

The think tank also said the government should ask the Bank of England to directly fund government spending.

The Bank is already doing this through its so-called ways and means facility, which is essentially an overdraft for the government. But the report called for a “a transparent, time-limited framework for monetary financing”.

“As well as refining its crisis response, the government must also plan a sustainable recovery,” said Richard Hughes, research associate at the Resolution Foundation.

“In doing so, Ministers should remember that young people and low-paid workers have borne the brunt of the crisis, and will need to be at the heart of support to get the economy back on track.”

By Harry Robertson

Source: City AM

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UK economy will suffer extremely large hit from coronavirus, warns rate-setter

Britain will suffer an “extremely large” hit to spending in the economy from the coronavirus lockdown – and monetary policy and Government actions cannot fully offset the impact, a Bank of England policymaker has warned.

Silvana Tenreyro – one of the Bank’s nine Monetary Policy Committee (MPC) members – also cautioned the UK recovery is likely to be “less V-shaped than one would like”, suggesting the bounce-back may not be as immediate as previously hoped.

In a speech broadcast online, she said the Bank stood ready to “do whatever it can” to help lessen the blow to households and businesses.

But she stressed monetary policy cannot “tackle such difficulties alone” and warned that even together with the Government’s mammoth emergency support, there will still be rising unemployment and shrinking output.

Ms Tenreyro said: “The data we have so far suggest that the drop in aggregate spending already taking place will be extremely large.”

She added: “Given the scale of the shock, it will not be possible to avoid further consequences for the economy.

“There will be a fall in employment where businesses fail or workers are made redundant.

“These occurrences should be ameliorated by the policy measures that have been put in place, but will not be prevented in full.”

She stressed that even without the lockdown and restrictions put in place, gross domestic product would have fallen sharply as Britons increasingly opted to stay at home.

“The fall in demand was clear in high-frequency indicators such as restaurant bookings and retail footfall, which fell sharply even before the Government’s decision to close restaurants and shops,” she said.

The Bank is forecasting inflation to fall below 1% from 1.7% currently in the next two months as fuel costs plunge thanks to crashing oil prices.

But while Britons will see rises in the cost of living ease, they will be knocked by falling wage growth, according to Ms Tenreyro.

She said: “Despite the policy responses, we will not be able to avoid a rise in unemployment, which will weigh on real wage growth across the economy.”

While some firms will see a rise in demand by offering alternatives, such as online food and grocery services to replace cafes and restaurant, she said this will be outweighed by the overall fall in spending due to falling incomes and consumer uncertainty.

She said: “Covid-19 is having unprecedented effects on all of our lives.

“The MPC, co-ordinating closely with other policymakers in the Bank and in government, will do whatever it can to minimise the economic disruption that the crisis could cause for households, businesses and financial markets.”

The Bank has already slashed interest rates to a new all-time historic low of 0.1%, from 0.75% previously, and unleashed another £200 billion of quantitative easing (QE) among a raft of actions to help the economy weather coronavirus.

But the Bank has already previously said it sees little benefit in taking rates below zero, suggesting it will have to look to more QE or radical options if further monetary support is needed.

Ms Tenreyro admitted the MPC is in unprecedented territory with the current crisis.

“The nature of the economic shock from Covid-19 is very different from those to which the MPC has previously had to respond,” she said.

Source: Express & Star

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UK GDP could fall by 30 per cent in second quarter

Chancellor Rishi Sunak has reportedly told ministers to expect GDP to fall by as much as 30 per cent between April and June.

The government’s draconian social distancing measures will be reviewed next week, with an extension considered a formality.

The coronavirus lockdown has already begun to bite the UK economy, with activity in the manufacturing sector hit with its largely monthly decline in March for almost a decade.

Claims for Universal Credit also increased fivefold last month, according to the Department for Work and Pensions.

The Times reports today that the chancellor has told ministers that GDP could fall by “25 per cent to 30 per cent” in the second quarter.

Sunak has yet to give a public estimate of how much Treasury is expecting GDP to fall due to the Covid-19 outbreak, however some banks are predicting up to 25 per cent.

When asked about the predicted drop in GDP today, the Prime Minister’s official spokesman declined to comment.

Some members of cabinet are reportedly urging for the lockdown to be eased next month among fears of long-lasting damage to the economy.

One minister told The Times: “It’s important that we don’t end up doing more damage with the lockdown.

“We’re looking at another three weeks of lockdown and then we can start to ease it.”

The UK has recorded the fourth most coronavirus deaths in the world, after Italy, Spain and France.

Italian Prime Minister Giuseppe Conte announced last week that the country would stay in complete lockdown until May 3, meaning the measures will be in place for at least two months.

Spain has moved to ease some of its tougher restrictions, such as closing down construction sites, but remains in a lockdown similar to the UK.

By Stefan Boscia

Source: City AM

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UK economy grew just 0.1 per cent before coronavirus lockdown

The UK economy grew 0.1 per cent in the three months to February before the coronavirus lockdown hit businesses.

The Office for National Statistics (ONS) data showed the increase was entirely down to the services sector.

The tiny rise, which is measured on a three-month rolling basis, was a slight improvement on the three months to January, when there was no growth.

In February GDP contracted 0.1 per cent, a lacklustre start to the year after the optimism that followed Boris Johnson’s resounding victory at the polls in December.

Thee coronavirus outbreak was already beginning to impact certain sectors of the economy at this stage, the ONS data showed. Travel agencies and manufacturers of transport equipment were the earliest firms to suffer.

A steep drop in the manufacture of transport equipment due to a fall in exports to China as a result of coronavirus was behind the overall weak performance.

Energy production, mining and quarrying all fell.

Growth in the services sector, which increased 0.2 per cent, was enough to push GDP forwards despite contraction in both production and construction.

Production showed the highest fall, dropping 0.6 per cent, while construction slipped 0.2 per cent before the coronavirus lockdown.

The fall in production marked the 10th consecutive three-month decline for the sector.

‘Worse to come’ for UK economy

The impact of the coronavirus lockdown, which has hit almost all shops and businesses, is yet to be seen. But accountant EY said the UK could see contraction of as much as five per cent in March.

This would result in an economic contraction of 1.3 per cent for the first quarter. EY predicted that will grow to an enormous 13 per cent contraction in the second quarter.

The decline will be led by a 14 per cent fall in consumer spending, EY said. A lack of consumer confidence and the closure of pubs and restaurants will underpin this plunge.

For the year as a whole, EY is predicting a contraction of 6.8 per cent. However, that is presuming the coronavirus lockdown is relaxed in the second quarter.

UK can start recovery from coronavirus lockdown in June

Howard Archer, EY’s chief economic adviser, said: “There is no denying that there are substantial downside risks. [But] we believe the economy can start to recover in the third quarter and then see decent activity late on in 2020 and during 2021.

“This is on the assumption that coronavirus peaks during Q2 2020 and the government starts to relax some of the restrictions on people’s movements and on business activity late on in the quarter and further loosens them during Q3.

“However, the government warned at the end of March that normal life in the UK may not return for up to six months”.

By Edward Thicknesse

Source: City AM