Rolling coverage of the latest economic and financial news, as MPC member Gertjan Vlieghe says UK may need more stimulus to fight Covid-19 crisis
- Latest: BoE’s Gertjan Vlieghe sees downside risks rising
- Vlieghe: Risk of large job losses as furlough scheme ends
- Introduction: Can Pelosi and Mnuchin reach a deal today?
- Wall Street fell last night as optimism faded
- Reckitt Benckiser: strong demand for cleaning and health products…
Gertjan Vlieghe goes on to warm that the recent increase in Covid-19 cases is likely to undermine the UK’s recovery from its Covid-19 slump:
Let me start with a bit of simple arithmetic to illustrate what is happening to the UK economy.
If something drops by a quarter and then increases by a quarter, it ends up a little more than 6% short of where it started.
While the economy so far has grown quickly, we must not lose track of where we are. There is a tremendous challenge ahead. GDP and labour market indicators stand at levels that are below what has historically been the trough of a recession.
Given that virus prevalence has been increasing again recently, it is likely to weigh more heavily on economic activity. Indeed, it appears that the downside risks to the economic outlook are starting to materialise. In my view, the outlook for monetary policy is skewed towards adding further stimulus.
Newsflash: One of the Bank of England’s top policymakers has warned that unemployment will rise sharply this autumn and winter as the government’s furlough scheme ends.
Gertjan Vlieghe, a member of the Monetary Policy Committee which sets interest rates, fears that joblessness could surge over the BoE’s current forecast of 7.5% unemployment at the end of 2020.
To be clear, we do not expect the 9% of private sector workers who are currently on furlough to lose their jobs. We expect many of them to either be re-employed by their current employer, or to find new work relatively quickly.
But, our August central forecast was for unemployment to reach a peak of 7½%, implying aggregate net job losses on the same scale as in the global financial crisis. The fact that redundancies are rising sharply and the number of vacancies is only at around 60% of its level at the start of this year makes it difficult to see a scenario where all of the remaining furloughed workers are reintegrated seamlessly into the labour force.
Gertjan Vlieghe examines the impact of the Covid-19 pandemic on the UK economy so far. And he looks at what the recent rise in infections means for the economic recovery. https://t.co/WJwUrphHdn #Covid19 pic.twitter.com/KlP33jzdUW
Heathrow’s new fast Covid-19 Covid tests may not prevent heavy job cuts at Hong Kong’s Cathay Pacific.
The South China Morning Post are reporting that the airline is planning to lose 6,000 workers — a grim total, but also less than first feared.
Cathay Pacific Airways has agreed to scale back planned job cuts by 25 per cent to around 6,000 globally, and will axe its Cathay Dragon sister airline brand, according to multiple sources.
Hong Kong’s flagship carrier was eyeing global lay-offs of up to 8,000, but has now reduced them to about 18 per cent of its total workforce, including around 5,000 in the city, after government intervention.
SCOOP: CATHAY PACIFIC TO CUT APPROX 18% OF WORKFORCE, MANAGEMENT WANTED 25% STAFF CUTS: SOURCES
– 5,000 JOBS TO GO IN HONG KONG (TOTAL 6,000 WORLDWIDE)
– CATHAY DRAGON TO CLOSE https://t.co/JY4WAWLRrh via @scmpnews
News of Heathrow’s speedy Covid-19 tests for passengers to Hong Kong and Italy has also lifted shares in jet engine maker Rolls-Royce (+4%).
Hopes of a pick-up in travel has also boosted engineering firm Melrose (+2.9%), which has an aerospace division.
Passengers flying from London Heathrow to Hong Kong and Italy will be able to have a rapid Covid-19 test at the airport before checking in from Tuesday.
UK housebuilder Bellway has reminded us of the economic damage caused by the pandemic, with its latest financial results.
A 3 point thread on some points from house builder Bellway’s results to year ended 31 July 2020 compared with a year ago.
– Revenue -30.7%
– Profit -46.6%
– Margin per home was 19.0% this year compared with 24.6% a year earlier.#ukhousing #ukconstructionhttps://t.co/KLzaxcNus9 pic.twitter.com/zca3mrkfD7
– House building completions -30.9%
– Additional £18.9 million costs from Covid-19 due to site delays & safety measures
– £46.8 million set aside to deal with fire safety improvements on previously built flats#ukhousing #ukconstruction pic.twitter.com/H5x2llDCiT
– Reservations +30.6% (but few/no house builders have been quoting starts figures)
– Productivity on their house building sites remain 10-15% lower than one year earlier (which is in line with other construction firms that I have been speaking to)#ukhousing #ukconstruction pic.twitter.com/SyVm6SSzST
Consumer goods giant Reckitt Benckiser has lifted its revenue guidance after seeing strong growth for hygiene and health products.
‘Stay at home’ dynamics and social distancing have had significant effects on some of our brands. For example, Finish and Air Wick have benefited from consumers spending more time at home.
In contrast, restrictions on movement have impacted cross-border sales, for example, for infant formula between Hong Kong and China and some VMS demand into Asia from the US.
There is also evidence that birth rates will be further lowered in coming quarters as a result of behaviour changes related to the pandemic. This is expected to have an impact on market growth for our infant nutrition business in 2021.
Following a more challenging first half of the year, relaxations of social distancing regulations resulted in improved demand for our sexual well-being products, including Durex, which saw double digit growth in revenue.
This has been particularly pronounced in markets where the rate of pandemic infection has materially improved.
The Europe-wide Stoxx 600 has opened 0.2% lower, with Germany’s DAX losing 0.3%.
Trading is muted in London too, with the FTSE 100 down 3 points at 5880.
Asia-Pacific markets had an edgy day, with Australia’s S&P/ASX 200 down 0.7% and Japan’s Nikkei losing 0.44% – although China’s CSI 300 gained 0.6%.
Fiona Cincotta of City Index explains that anxiety from Wall Street spilled across the markets:
Wall Street ended lower as the stimulus clock ticked. News that there was still no agreement on fiscal stimulus unnerved investors. The negativity spilled over into Asia overnight and Europe is also set to start in the red.
The Tuesday deadline for a fiscal stimulus agreement between the Democrats and Republicans looks as if it could come and go without an agreement being reached. Whilst the two sides are narrowing their differences, differences still remain and the deadline is later today. The likelihood of a deal being achieved before the November 3rd election is slipping lower.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The Speaker and Secretary Mnuchin spoke at 3:00 p.m. today for approximately 53 minutes. In this call, they continued to narrow their differences. The Speaker has tasked committee chairs to reconcile differences with their GOP counterparts on key areas. (1/2)
The Speaker continues to hope that, by the end of the day Tuesday, we will have clarity on whether we will be able to pass a bill before the election. The two principals will speak again tomorrow and staff work will continue around the clock. (2/2)
The two sides remain talking ahead of today’s deadline. While the Republican-led Senate has been reluctant to pass a stimulus bill above the $500 billion level that Majority leader McConnell has supported, President Trump has indicated that he is willing to go up to the $2.2 trillion range that Democrats have demanded. Mr Trump said yesterday that if an agreement with Democrats is reached, he would “lean” on Republican Senators to “come along.”
Regardless, the confirmation that the two sides remain significantly apart saw the S&P 500 fall over 1.1% in the last 90 minutes of trading, though the index had been dripping lower throughout the day as risk sentiment soured after a healthy start.
Markets pulling back again late in Asian session after early recovery.