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“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.’

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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.

“There is pent-up demand and ambition across many sectors”

Last Friday, the Confederation of British Industry (CBI) published its latest economic forecast, which predicts UK GDP growth is set to bounce back to pre-COVID levels by the end of the year, despite the four-week delay in lifting all lockdown restrictions. The industry body said the economy looks ‘set for a breakthrough year,’ with its new projections estimating growth of 8.2% in 2021 and 6.1% next year, significant upgrades from the 6.0% and 5.2% previously forecast.

These upward revisions largely reflect the previous relaxation of lockdown restrictions, rapid vaccine rollout and unleashing of pent-up demand. CBI Director General, Tony Danker, commented, “There are really positive signs about the economic recovery ahead this year and next. The data clearly indicates that there is pent-up demand and ambition across many sectors.” Mr Danker added, “The imperative now must be to seize the moment to channel this investment into the big drivers of long-term UK prosperity” and called on the government to produce “far more detailed plans on everything from decarbonisation, to innovation, to levelling up.” 

Inflation above Bank target

The past seven days have also seen the Office for National Statistics (ONS) release a raft of economic data, including the latest inflation figures, which revealed the Consumer Prices Index (CPI) now stands above the Bank of England’s 2% target. An increase in the cost of fuel and clothes pushed the CPI rate up to 2.1% in the year to May, significantly higher than April’s 1.5% figure and above all forecasts in a Reuters poll of economists. While most policymakers still appear to believe upward price pressures will prove temporary, the higher-than-expected inflation number inevitably fuelled further debate about the future timing of interest rate movements.

Retail sales dip

Last week also saw publication of the latest retail sales statistics, which reported an unexpected drop in sales. According to ONS data, total sales volumes fell by 1.4% between April and May, as people chose to visit reopened hospitality venues rather than buying food at supermarkets. ONS commented, ‘Anecdotal evidence suggests the easing of hospitality restrictions had an impact on sales as people returned to eating and drinking at locations such as restaurants and bars.’ While strong hospitality trade suggests the disappointing sales figure is not necessarily an early sign of weaker consumer demand, some economists did point to other data revealing a fall in credit and debit card payments, and restaurant reservations in early June, as evidence that the surge in spending may be losing steam.

Government borrowing eases

Public sector finance statistics, published on Tuesday, showed that borrowing continues to fall from the mammoth levels witnessed last year. In May, the government borrowed £24.3bn; this was £19.4bn lower than last year, although still the second-highest May number ever recorded. Encouragingly, the figure was below analysts’ expectations, with signs that the recent economic recovery has started to boost tax revenues. The data also revealed government debt now stands at almost £2.2trn, or 99.2% of GDP, a ratio not seen since the early 1960s. In a statement, Chancellor Rishi Sunak reaffirmed his commitment “to support people and businesses to get back on their feet” but also stressed the need “to get the public finances on a sustainable footing” over the medium term.

Fed signals earlier rate rise

Across the pond, last week saw the Federal Reserve vote to leave US interest rates unchanged, although it did announce a further upgrade to its growth forecast, as well as a rise in anticipated inflationary pressures. The Fed now expects the US economy to grow by 7.0% across the whole of 2021, up from its March prediction of 6.5%, while this year’s inflation forecast has been raised to 3.4%, from 2.4% previously.

The US central bank also brought forward its prediction for the first rise in interest rates. The ‘dot plot’ of policymakers’ forecasts now points to two rate hikes before the end of 2023; in comparison, a majority of Fed policymakers had suggested the first hike would not come until 2024, at its previous meeting held in March.

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.

‘Shared beliefs and shared responsibilities are the bedrock of leadership and prosperity’

The G7 Summit in Cornwall dominated headlines over the weekend, with leaders of the ‘Group of Seven’ (UK, US, Canada, Germany, France, Italy and Japan) meeting to discuss global worldwide issues, including vaccination programmes, economic recovery and climate change.

The Prime Minister hosted the 47th G7 Summit, the first meeting of global leaders in two years, which was also attended by EU representatives, including Ursula von der Leyen, and other key individuals from non-member countries, including Australian Prime Minister, Scott Morrison.

With a packed agenda to work through, after three intensive days of meetings, a communiqué was published on the conclusion of the Summit, in which the leaders collectively outlined, ‘We gathered united by the principle that brought us together originally, that shared beliefs and shared responsibilities are the bedrock of leadership and prosperity. Guided by this, our enduring ideals as free open societies and democracies, and by our commitment to multilateralism, we have agreed a shared G7 agenda for global action.’

Key pledges from the Summit include to:

End the pandemic and prepare for the future by driving an international effort to vaccinate the world by getting as many safe vaccines to as many people as possible, as fast as possible

Reinvigorate our economies by advancing recovery plans that build on the financial support put in place during the pandemic

Secure our future prosperity by championing freer, fairer trade within a reformed trading system, a more resilient global economy, and a fairer global tax system

Protect our planet by supporting a green revolution that creates jobs, cuts emissions and seeks to limit the rise in global temperatures

Strengthen our partnerships with others around the world and develop a new partnership to build back better for the world, through a step change in our approach to investment for infrastructure, including through an initiative for clean and green growth.

On Sunday, President Biden met the Queen at Windsor Castle, before progressing to Brussels for a meeting at the NATO headquarters, then rounding off his European tour with a one-to-one meeting with Vladamir Putin on 16 June in Geneva.

‘Freedom Day’ delayed

As anticipated, Boris Johnson confirmed that restrictions will not ease as initially hoped on 21 June. This will allow more people to get vaccinated, to contend with the sharp rise in infections due to the Delta variant. A review will be conducted in two weeks, with the government reserving the possibility of proceeding to step four and a full opening sooner than 19 July. Scientists have advised that the four-week delay would reduce the peak in hospital admissions by between a third and a half.

Although most current restrictions will remain in place, the 30-person limit on weddings and wakes will be removed on 21 June, but strict measures will still apply, and will vary depending on the type of venue.

Director General of the Confederation of British Industry, Tony Danker, commented on the roadmap delay, “Public health comes first, so while a delay is regrettable, it’s understandable. Most businesses favour certainty and irreversibility over speed… But we must acknowledge the pain felt by businesses in hospitality, leisure and live events. At best they’re operating with reduced capacity hitting revenues, and at worst, some aren’t open at all.”

Despite the delay to the road map, Chancellor Rishi Sunak confirmed that the furlough scheme will not be extended. The scheme is scheduled to run until 30 September, with employers contributing from July.

Around the UK – in Wales, rules will be reviewed on 21 June and in Northern Ireland, a review will take place on 17 June. In Scotland, Nicola Sturgeon has said that plans to move all areas to Level Zero COVID restrictions on 28 June would “in all probability” be paused.

UK economic update

Data released last Friday by the Office for National Statistics (ONS) showed that the UK economy grew by 2.3% in April, its fastest monthly growth since July 2020. This has been attributed to shoppers spending more as non-essential shops reopened, and people bought more cars and caravans. Chancellor Rishi Sunak said that the figures were “a promising sign that our economy is beginning to recover.”

On Tuesday, ONS said there were 197,000 more workers in payrolled employment in May than in April and the unemployment rate fell to 4.7% in the three months to April, down from 4.8% previously.

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.