UK economy nears 'perilous turning point' on Covid-19

Coronavirus second wave accelerates

Rapid growth in coronavirus infections have led Boris Johnson to warn that the UK is at a “perilous turning point” as a second wave begins to sweep the country. Tougher restrictions have been introduced to control the virus as a consequence, with measures that could last six months. The government’s chief scientific and medical advisers have warned that new daily cases of Covid-19 could accelerate to 50,000 by mid-October, with 200 deaths a day by the following month. In the UK as of 28 September, 439,013 cases of coronavirus have been confirmed and 42,001 deaths.

Road traffic cools after summer rush

Driving on Britain’s roads has reduced slightly after a summer boom in people leaving home for domestic holidays and day-trips, while a steady recovery in public transport use has also faded. According to Apple mobility data – which records requests made to Apple Maps for directions – driving is still up by 11% compared with January in a sign that more people are using cars. Public transport use remains down by about a fifth, reflecting concerns over health risks.

Stock markets fall on lockdown fears

Billions of pounds have been wiped off the value of the stock market as fears mount over the impact from the second wave of Covid-19. The FTSE 100 – the leading benchmark of the UK stock market – has slumped by 3.5% to below 6,000 points, while other markets around the world have also sold-off sharply. The slump follows speculation that the government could impose tougher restrictions on business and social life in response to rising coronavirus cases, threatening to derail the nascent recovery in the UK economy.

Eat out to help out sinks inflation

The government’s “eat out to help out” scheme – which some experts said probably contributed to a spread of Covid-19 – pushed down restaurant and cafe prices in August, sinking UK inflation to its lowest level for five years. The consumer price index (CPI) measure of inflation fell to 0.2% from 1% a month earlier. Downward pressure on prices also came from falling air fares and clothing prices rising by less than a year ago as fashion retailers struggle for business.

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Economy loses momentum before restrictions

Surveys of business activity show the UK’s recovery from the Covid-19 lockdown lost momentum even before Boris Johnson announced new restrictions. The IHS Markit/CIPS flash UK PMI composite output index fell to 55.7 in September, from 59.1 in August. A figure above 50 indicates expansion. The tail-off in growth comes as concerns mount over rising infections, and after much of the bounce-back in activity after lockdown, as pent-up demand was satisfied, had run its course. Business activity is also slowing in other countries and regions around the world, including in the eurozone where infections are also rising, while economic output also fell slightly in the US.

Redundancies rise at fastest rate since 2009

The scale of the jobs challenge facing the chancellor, Rishi Sunak, and his furlough replacement scheme came into sharp focus this month when official figures showed a sharp rise in unemployment. According to the Office for National Statistics, the number of redundancies in the UK accelerated in July at the fastest pace since the financial crisis, despite more than half of furloughed workers returning to their jobs. As many as 695,000 jobs have been lost from company payrolls since March. Economists warn that the chancellor’s new job support scheme is unlikely to prevent a further rise in job losses this winter.

Retail sales soar above pre-pandemic levels

The gradual return of shoppers to high streets after lockdown and spending on DIY helped to drive up UK retail sales for the fourth consecutive month in August. In a sign of consumer spending power holding ground despite Britain falling into the deepest recession on record, the ONS said the volume of retail sales rose 0.8% in August from a month earlier. However, not all shops have benefited from the rise in spending as Covid-19 changes the shape of the retail industry. Sales in clothing stores remains 15.9% below February levels, while footfall in big city centres is significantly down.

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UK budget deficit widens further

The economic fallout of Covid-19 has weighed heavily on the public finances, as tax receipts fall and government spending rises to support businesses, workers and households. The government deficit increased by almost £36bn in August, taking the overall shortfall between state spending and income from taxes to a record £173.7bn for the first five months of the 2020-21 financial year. However, the level of borrowing in August was about £2bn lower than City analysts expected. Economists expect the monthly level will decline later this year as the government scales back its support for jobs and growth.

UK economic recovery continued in July

The reopening of pubs, restaurants and non-essential shops helped grow UK economy for a third month in a row in July as lockdown measures were relaxed, but the level of GDP has still only recovered about half the ground lost since the Covid-19 crisis began. The ONS said GDP rose by 6.6% in July compared with the previous month, in a rapid bounce-back from the deepest recession on record. However, it remains 11.7% below the levels recorded in February before the virus spread widely in Britain.

House price mini-boom continues

House prices in the UK jumped to a new record last month, fuelled by a rush to buy homes after lockdown, the government’s stamp duty holiday and homeowners working from home reassessing where they want to live. The average price of a home rose 1.6% in August from July to £245,747, Halifax said in its monthly house price report. This is up 5.2% from a year earlier, the fastest annual rate since late 2016.

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And another thing we’ve learned this month … Furloughed workers are returning to their jobs, but millions still at risk

Rishi Sunak’s announcement of a replacement for the furlough scheme comes as millions of workers remain on the government support programme before the scheme is due to close at the end of next month. According to the ONS, the proportion of the UK workforce on furlough has reduced from a peak of 30% in May to about 12% by early September. However, some sectors are still more dependent on support than others. As many as 40% of arts, entertainment and recreation workers remain on furlough, and almost a third in the hospitality sector, including hotels, pubs, cafes and restaurants. More than a million workers are still expected to be on furlough at the end of next month. Economists have also warned of a rise in unemployment as Sunak’s new job support scheme expected to fail to protect workers in sectors such as hospitality.


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