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“The current approach to self-isolation is closing down the economy”

During a week which saw the delayed Tokyo Olympics finally get underway, the news agenda on these shores was largely dominated by the so-called ‘pingdemic’. After it was revealed that almost 620,000 alerts were sent to Test and Trace app users in England and Wales during the second week of July, the Confederation of British Industry (CBI) warned that the sharp rise in self-isolations was threatening the economy. CBI Director-General Tony Danker said, “The current approach to self-isolation is closing down the economy rather than opening it up. Businesses have exhausted their contingency plans and are at risk of grinding to a halt in the next few weeks.”

On Thursday evening, the government responded by announcing plans to roll out daily contact testing for supermarket depots and food manufacturers, to prevent up to 10,000 workers having to isolate when ‘pinged’. More critical workers, including police, firefighters and workers in some other industries, have subsequently been added to the daily testing programme. However, on Sunday, CBI Director of Policy John Foster said the exemption list “won’t get us where we need to be” and added, “If we want the economy to stay open, we need a confident but balanced plan. We should bring forward the date from 16 August when those who have been double-jabbed no longer need to self-isolate if they test negative once contacted.” 

UK growth slows down

A closely watched economic survey released on Friday suggests that the ‘pingdemic’ has already begun to impact on business activity levels. The IHS Markit/CIPS flash composite Purchasing Managers’ Index (PMI) fell to 57.7 in July from 62.2 in June, the lowest reading since March and significantly below market expectations. Commenting on the survey’s findings, IHS Markit Chief Business Economist Chris Williamson said, “July saw the UK economy’s recent growth spurt stifled by the rising wave of virus infections, which subdued customer demand, disrupted supply chains and caused widespread staff shortages, and also cast a darkening shadow over the outlook.”

Policymakers feel inflation tide will ebb

July’s PMI data also highlighted intensifying inflationary pressures, with input costs hitting an all-time high and output charges rising at a near-record rate. However, despite the continuing surge in inflation, during the past seven days, two Bank of England policymakers have reaffirmed their view that the current spike in prices is unlikely to persist, and that the central bank should not rush to remove stimulus for the economy.

Last Thursday, Deputy Governor Ben Broadbent said, “While we know it’s going to go further over the next few months, I’m not convinced that the current inflation in retail goods prices should in and of itself mean higher inflation 18 to 24 months ahead.”  On Monday, Gertjan Vlieghe, one of four external members of the Bank’s interest rate setting Monetary Policy Committee, said he felt the recent rise in inflation is likely to prove temporary, adding “I think it will remain appropriate to keep the current monetary stimulus in place for several quarters at least, and probably longer.”

Retail sales growth in June

Last Friday saw publication of the latest official retail sales statistics, which were boosted by strong demand for food and drink as fans watched Euro 2020. According to Office for National Statistics (ONS) data, total sales volumes rose by 0.5% between May and June, with food sales the main driving force behind the growth. ONS said, ‘Feedback from some retailers suggested that sales were positively boosted in June by the start of the Euro 2020 football championship.’  In contrast, overall sales at non-food shops declined, largely due to weak demand for furniture and clothing.

Government debt costs rise

Public sector finance statistics were also published last week and showed that borrowing continues to ease from the mammoth levels witnessed last year. In June, the government borrowed £22.8bn; although this was a fifth lower than the equivalent month’s figure in 2020, it still represents the second-highest June number ever recorded. The data also revealed upward pressure on debt costs, as rising inflation increased the value of index-linked government bonds. As a result, a record £8.7bn was spent on interest payments last month, more than three times the amount paid in June 2020.

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“With every day that goes by our economy is slowly and cautiously picking itself up off the floor”

Ahead of so-called ‘Freedom Day’ on Monday, Boris Johnson urged people to exercise caution as most restrictions on social contact were lifted in England. With the Prime Minister and Health Secretary currently isolating, and UK daily infections totalling around 50,000, there are warnings that cases will surge over the summer. It was announced this week that some fully vaccinated people in critical roles in England, including NHS and care staff, will be able to continue working even if told to self-isolate.

Last Thursday, in the West Midlands, the Prime Minister set out his post-pandemic vision to level up the UK, outlining  government plans to “rewrite the rulebook” on local devolution, adding “With every day that goes by our economy is slowly and cautiously picking itself up off the floor, businesses are opening their doors… it is the mission of this government to ensure that in so far as COVID has entrenched problems and deepened inequalities – we need now to work double hard to overturn those inequalities… so that everyone everywhere feels the benefits of that recovery and that we build back better across the whole of the UK.”

Global stock markets fell at the start of the week, as fears that soaring infection rates will derail the trajectory of the economic recovery intensified. After the Dow’s worst day of the year so far, global shares stabilised on Tuesday as economic growth concerns eased.

UK job vacancies continue their ascent

Data released from the Office for National Statistics (ONS) last week, shows the UK labour market continues to recover. Despite remaining below pre-pandemic levels, the number of payroll employees increased again in June, totalling 28.9 million, up 356,000 month-on-month. For the first time since the beginning of the pandemic, some UK regions saw payroll numbers rise above pre-pandemic levels, including Northern Ireland, North East England, East Midlands and the North West.

In the three-month period to June, UK job vacancies surpassed pre-pandemic levels, driven by vacancies in the hospitality and retail sectors, with 862,000 jobs available in the three months to the end of June, 77,500 higher than the first three months of 2020.

Director of Economic Statistics at ONS, Darren Morgan, commented, “The labour market is continuing to recover, with the number of employees on payroll up again strongly in June. However, it is still over 200,000 down on pre-pandemic levels, while a large number of workers remain on furlough.”

Small shops face mountain of debt

A new report from veteran retailer Bill Grimsey, highlights how independent high street business debt has quadrupled over the last year, with Britain facing a ‘tsunami’ of shop closures this autumn, unless the government steps in. The report reveals that the UK’s small shopkeepers are grappling with debt of £1.7bn, having survived the pandemic by borrowing and now face the task of paying it back. Grimsey commented, “Our high street independents have experienced a new-found appreciation during lockdown. But they’ve also been forced to take on government-backed loans, which they would not have normally been able to get because their balance sheets wouldn’t allow it. Now they are struggling to manage a mountain of debt and need help.” The report concludes that Britain will not be able to ‘build back better’ unless policymakers choose to look beyond infrastructure investment to ‘equally prioritise small business and strengthen the social fabric of high streets.’  

China’s economic rebound loses momentum

New official figures show that the Chinese economic rebound has started to slow, with economists raising concerns over the recovery of the world’s second largest economy. Failing to hit the economists’ forecasts of 8.1% growth, Chinese GDP increased by 7.9% in Q2 (compared to the same time last year). Despite better-than-expected growth for industrial production and retail sales, shipping firms have been impacted by backlogs in the supply chain which have hampered factory output. Record high commodity prices pushed factory inflation to the highest level in over ten years. The National Bureau of Statistics report outlined, ‘China’s economy sustained a steady recovery with the production and demand picking up’, before going on to caution, ‘The epidemic continues to mutate globally and external instabilities and uncertainties abound.’

Here to help

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

“We think now is the right moment to proceed”

In Monday’s Downing Street briefing, Prime Minister Boris Johnson confirmed that almost all remaining coronavirus restrictions will lift on Monday 19 July, despite cases and hospital admissions rising, as it was felt that a further delay could risk a bigger surge in the autumn. Although stating “We think now is the right moment to proceed”, he added that life will not “revert instantly” to normal, urging that we must proceed “with caution.” The government continues to ‘expect and recommend’ the wearing of face masks in crowded indoor places and guidance will be provided on a gradual return to offices and workplaces.

First Minister Nicola Sturgeon, announced on Tuesday that Scotland will proceed to level 0 of the five-tier system next week, adding, “We are easing restrictions next week, but we are not abandoning them.” In Wales, Ministers will announce any changes to restrictions on 14 July. The Northern Ireland Executive has agreed that more restrictions are likely to be lifted on 26 July, subject to ratification by Ministers on 22 July.

Economic growth slows in May

Data released last week by the Office for National Statistics (ONS), shows that the economy grew at a slower pace than anticipated during May, expanding by just 0.8%. Disruptions to car production offset a rebound in the hospitality sector as restrictions eased, allowing restaurants and pubs to serve indoors. The service sector grew by 0.9% in the month; food service and accommodation activities, including hotels, grew by just over 37%.

Despite being the fourth consecutive month of growth, it was a slowdown from the growth of 2% in April. Some of the sectors particularly weighing on growth include carmakers and construction firms. Shortages of microchips have proved problematic for car production and the manufacture of transport equipment fell by 16.5%. The wet weather in May adversely impacted construction firms, who lost working days. The economy is currently 3.1% below pre-pandemic levels.

Sunak urging younger workers back to the office

Chancellor of the Exchequer Rishi Sunak, spoke last week about the impact of remote working on those in the early stages of their careers, describing it as “not great” because face-to-face interactions for this group are particularly “valuable.” As the economy reopens and people are encouraged to return to their offices as restrictions ease, he said it’s “really important” especially for younger staff to return. Optimistic about the prospects of recovery over the coming months, the Chancellor said that as restrictions lift, the economy’s “engine is roaring” and “moving up a gear.”

His valuation came amid various expectations of a summer consumer spending boom. In fact, in the Institute for Fiscal Studies recent living standards report, the ‘astonishing’ return of real earnings growth and unemployment to pre-pandemic levels in the wake of major economic disruption, was highlighted. Focusing on UK labour market conditions, the report deduced, ‘Overall, given the huge changes to the economy and the labour market in 2020–21, it may be considered remarkable how little change there was in many labour market indicators. While there were large increases in the proportion of people not working, the existence of the furlough scheme means that the proportion of people unemployed or inactive, and therefore completely without a job, has risen only modestly. Of course, this may change in the autumn of 2021, when the furlough scheme comes to an end and when unemployment is expected to rise.’

High street recovery

According to the British Retail Consortium (BRC), high street sales in Q2 were up by 28.4% compared to a year ago and were 10.4% up from 2019. BRC attributed the best three months on record to good weather in June and the Euro 2020 tournament. The report also found that online sales remained much higher than their pre-pandemic levels, suggesting the shift to online is ‘here to stay.’

Here to help

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

“We must take a careful and a balanced decision”

In a Downing Street briefing on Monday, Prime Minister Boris Johnson said ministers will make a final decision on 12 July, whether step four of restriction easing would happen as planned on 19 July. Most legal restrictions look set to be scrapped, with face masks no longer legally required, an end to 1m-plus social distancing and the reopening of all businesses, including nightclubs. Limits on numbers meeting indoors and outdoors look set to be removed, and work from home guidance withdrawn. He also stressed that the pandemic was “far from over” as case numbers rise, but due to the effectiveness of the vaccine rollout, now is time to “take a careful and a balanced decision.”

With over 640,000 children absent from school last week due to factors linked to COVID, on Tuesday, Education Secretary Gavin Williamson, announced that use of protective bubbles in England’s schools, colleges and early year settings, will be removed from 19 July.

The Scottish government has suggested it may retain some basic measures, including wearing masks, at its next review in August. On Monday, the Welsh Health Minister said the nation was going to have to “learn to live with” coronavirus – the Welsh Government’s position will be announced on 14 July. Progress will be reviewed in Northern Ireland on Thursday.

Global tax overhaul backed by 130 countries

Last week, the Organisation for Economic Co-operation and Development (OECD) confirmed that 130 countries had agreed to a minimum corporate tax rate of 15%, to ensure that large companies pay ‘a fair share’ wherever they operate. It is estimated that the plans will generate tax revenue of around £109bn a year. US Treasury Secretary, Janet Yellen, said it was a “historic day for economic diplomacy.”

Bank Governor warns against overreaction to higher inflation

Andy Haldane, who left his role as the Bank of England Chief Economist last week, after having been at the Bank for 32 years, warned that inflation could be closer to 4% than 3% by the end of 2021. In response, Bank of England Governor Andrew Bailey, cautioned against any overreaction to rising inflation, saying that any increase is expected to be a “temporary feature” of the UK economy’s “bounce-back” from COVID.

UK service sector continues recovery

Figures released on Monday show that the UK services sector continues to rebound from the pandemic. The latest IHS Markit/CIPS UK Services PMI reached 62.4 in June, which is down slightly from 62.9 in May, but still the second-highest reading since October 2013. A reading above 50 indicates an expansion in business activity.

Chancellor outlines UK roadmap for financial services

Last week, in his first address at Mansion House, Chancellor Rishi Sunak outlined how the UK’s financial services industry can take the lead globally, as well as create prosperity at home. He said, “More open, more competitive, more technologically advanced, and more sustainable – that is our vision for financial services. The roadmap we are publishing today sets out a detailed plan for the next few years – and I look forward to delivering it, together.”

His speech also reaffirmed the importance of green finance in the UK, confirming the already-announced launch of the world-first Green Savings Bonds in September and new requirements for businesses and financial products to disclose sustainability information. 

Post-Brexit rebound – London reclaims trading top spot

On Friday, news came that London had reclaimed its place as Europe’s largest share trading centre for the first time since Brexit, pushing Amsterdam off the top spot. £7.6bn of shares a day were traded on average at London venues in June, compared to £7.5bn for various Dutch venues. Paris was the third largest trading venue.

Electric vehicles provide boost

Japanese carmaker, Nissan, has announced plans to expand its electric vehicle production in Sunderland, by investing £1bn. As well as creating 1,650 new jobs, the investment will support thousands more in the supply chain. Boris Johnson called it a “pivotal moment.”

This was followed by news on Tuesday that Vauxhall owner Stellantis, plans to build electric vans at its Ellesmere Port plant in Cheshire. The £100m investment, which includes government contributions, will safeguard more than 1,000 factory jobs.

Here to help

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

‘The Committee judges that UK inflation expectations remain well anchored’

Last week, the Bank of England’s Monetary Policy Committee (MPC), unanimously voted to maintain base rates at an all-time low of 0.1%. In a statement released on Thursday, the MPC shrugged off concerns over a pick-up in inflation, saying its expectation is that ‘the economy will experience a temporary period of strong GDP growth and above-target CPI inflation, after which growth and inflation will fall back.’ The Committee did acknowledge the possibility that ‘near-term upward pressure on prices could prove somewhat larger than expected’ but, taking account of all the available evidence, concluded that ‘UK inflation expectations remain well anchored.’

The MPC statement was released a day after the latest IHS Markit/CIPS Composite Purchasing Managers’ Index (PMI) reported a surge in inflationary pressures faced by UK firms. According to preliminary June data, input costs are now rising at their fastest rate for 13 years, while prices charged by firms are increasing by the largest amount since records began in 1999. This suggests consumer price inflation may have a lot further to rise, after breaking through the Bank’s 2% target last month. However, while the MPC did admit inflation is likely to rise above 3%, it reaffirmed its view that this will only be ‘for a temporary period.’

UK economic expansion continues

Other data published in the PMI survey, pointed to strong monthly improvement in business activity across the UK private sector. June’s headline reading was only slightly below the record figure posted in May and among the largest in the index’s 23-year history, with marked increases in output across manufacturing and service sectors. Chris Williamson, Chief Business Economist at IHS Markit said, “Businesses are reporting an ongoing surge in demand in June as the economy reopens, meaning the second quarter looks to have seen economic growth rebound very sharply from the first quarter’s decline.”

Consumer confidence stays strong

Data released during the past week suggests consumer sentiment remains at healthy levels. GfK’s Consumer Confidence Barometer was unchanged in June, leaving it at its highest point since the outset of the pandemic. June’s CBI Distributive Trades Survey recorded the highest net retail sales balance since August 2018, while retailer expectations for July remain good for the time of year. CBI Principal Economist Ben Jones commented, “The success of the vaccination programme is feeding through to stronger consumer confidence which, along with the re-opening of hospitality, is encouraging shoppers back onto the streets.”

On Monday, the new Health Secretary, Sajid Javid, confirmed that restrictions are still set to be lifted on 19 July in England, adding, “People and businesses need certainty, so we want every step to be irreversible.”

Employer confidence up; furlough numbers down

A survey published last week found employers are increasingly optimistic about economic prospects. The Recruitment & Employment Confederation’s measure of business confidence surged 21 percentage points to +11 in the three months to May, its first positive reading since June 2018 and the highest figure for almost five years. The survey did, however, report labour and skills shortages as a growing problem.

Statistics revealed that the number of furloughed employees dropped to around 1.5 million in early June, the lowest figure since the pandemic began, suggesting that the programme’s demise on 30 September may not create as large a jump in unemployment as previously feared.

US infrastructure bill

Last week, the US Senate agreed a cross-party infrastructure bill, worth $1.2trn. The eight-year plan, including funding for roads, public transport and internet accessibility, was hailed by President Biden, as long overdue. He added, “We’re in a race with China and the rest of the world for the 21st Century. This agreement signals to the world that we can function, deliver and do significant things.” The advancement of this dealdepends on the progress of a massive $6trn spending package, to deliver on campaign promises such as climate change, education and childcare benefits.

Overseas travel update

On 24 June, Transport Secretary Grant Shapps, announced additions to the green list of countries, including Malta, Madeira, and the Balearic Islands, from 4am Wednesday 30 June. Red list additions include Dominican Republic, Tunisia and Uganda.

Here to help

Financial advice is key, so please do not hesitate to get in contact with any questions or concerns you may have.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.