Rishi Sunak is now the most popular Chancellor of the Exchequer, since Gordon Brown, apparently. With over 9 million on the payroll and more supported by unemployment pay, the social media modelled Chancellor, is now tipped for the top job, if Boris Johnson slips up.
This week, the Chancellor announced his "Plan for Jobs in 2020". How the government will boost job creation in the UK and more importantly, stop the cash being splashed, on the extremely expensive furlough scheme.
The scheme is due to end in October. The Prime Minister has warned, it is a scheme which cannot go on forever. When it ends, the government fears a wave of redundancies, just before Christmas. Hence, the "Plan for Jobs". The plan includes a VAT cut for the hospitality sector, "eat out to help out" vouchers for families, a cut in stamp duty, a new job retention scheme, a grant for green home spending, plus bonuses for apprenticeships and youth work placement.
Together the schemes will cost a further £30 billion pounds, on top of the £120 billion of special measures already in place. Tucked away in the small print, the Treasury glossed over a further £33 billion of spending on the NHS, including £15 billion to be spent on PPE and £10 billion on "test and trace".
£30 billion here, £30 billion there, and soon you are spending real money. According to the IFS, government spending in the current financial year will be a staggering £350 billion. The deficit will push towards 20% of GDP before too long. But is the money all well spent?
The VAT cut is described as manna from heaven by the hospitality sector. At a cost of £4 billion, the cut may well be extended into Easter next year. The Stamp Duty cut is welcomed by the housing sector. Buyers will save an average £5,000 per transaction.
A boost to the green economy always welcome, a stimulus to apprenticeships and youth employment always a valiant effort. The voucher scheme, to boost the restaurant trade, comes at a time when most people are still uncomfortable about eating out. Jenny Harries, the Deputy Chief Medical Officer is uncomfortable when they do.
People should reduce the risk of dying, by slimming down and losing weight, the main medical message. The scheme is expected to cost about £500 million pounds. Chump change, crumbs from the Treasury table, in the grand scheme of things.
The main criticism is of the job retention scheme. Businesses who bring back workers from furlough will be paid a £1000 bonus per employee if they remain in work into next year. If all furloughed employees are brought back into work, this could cost the Treasury £9 billion.
Companies will receive the bonus, even if employees have already returned to work. Many will return to work with or without the scheme. For those set to lose their jobs, the bonus will be of little value. Economists call this a "dead weight scheme".
HMRC are unimpressed. Jim Harra, Chief Executive, in a written letter to the Chancellor, reports "I am unable to reach a view, this represents value for money, to the standards expected, by the "Managing Public Money" guidelines.
The scheme must have focus grouped well, especially among the Tory back benches. The money would have been better spent on extending the furlough scheme, to the end of the year, in sectors like hospitality which have been badly hit.
The Chancellor explained there is more to be announced in the Autumn Statement ... time enough to let the markets run and measure the return to work momentum in an economy badly damaged by shut down. Time then to ensure further spending plans represent value for money to the standards expected. The Chancellor's rating may have taken a hit on Instagram, the clock is Tik Toking on any leadership move ...
Joe Biden makes a move ...
Joe Biden emerged from the bunker this week. The candidate announced a $700 billion dollar plan to "build back better". The plan, to create jobs in the USA and invest in new technologies.
Battery technology, artificial intelligence, biotech and clean energy will feature. Digging for coal and lagging the roof will not.
Five million new jobs will be created by investing in domestic production and substitution of foreign supply chains. Corporation tax will increase to fund part of the spending plans. An increase in the minimum wage expected, an increase in union access will also form part of the plan.
"Trump has simply given up" says Biden, "American families are paying the price of White House incompetence."
Biden is ahead in the polls. Top voter concerns are Coronavirus, Racial Injustice and Foreign Policy. Hardly Trump strong points. Mike Pence is making the hard yards on campaigning at the moment. Speculation is rising Trump may quit the race.
In a piece in the Evening Standard this week, Jon Sopel North American Editor for the BBC writes ...
"It is striking, just how many well connected people have told me, that if the polls stay as bad as they are for Trump right now, then come Labour Day (September 7th), they wouldn’t be surprised if he quit the Presidential race."
Why would Trump quit? In the President’s limited lexicon, no word is more insulting than loser. The argument goes, that if he can’t win, he will find a way to extract himself from defeat. Supporters are becoming frustrated by his self defeating conduct. This week the President announced he has no interest in a phase two trade deal with China.
"I don't think about it now" Trump told reporters on Air Force One this week. "They could have stopped the plague, they could have stopped it, they didn't stop it."
Joe Biden is ahead in the polls. His campaign strategy is primarily, to do next to nothing and say next to nothing. His guidelines, part philosopher Boethius, “Stay silent and they will think you are wise” and part assassins code “There is no need to murder someone, who is committing suicide".
The Samaritans guidelines tell us, the majority of people who feel suicidal, do not actually want to die, they do not want to live the life they have. It may well be the President no longer wishes to live life in the White House. Hopes of a Nobel peace prize dashed, defeat in the polls in November best avoided, political suicide offers a plausible way out ...
That's all for this week! Have a great, safe, week-end, eat out, help out, work out, wear a mask, with a smile ...
"Eat Out to Help Out" the message from the Chancellor this weekend. The pubs are open, the restaurants ready for action. Britain needs to start spending again. If not, a generation of young people will become "out of work" victims, of the economic crisis. "We must learn what it is like to go out again. It is the nation's duty to get out there and spend, to save jobs at risk", says Rishi Sunak
The hospitality industry is worth £130 billion per annum. It generates almost £40 billion in tax revenues for the exchequer. It is the third largest private sector employer accounting for ten per cent of total employment and five percent of GDP.
The Treasury are anxious to get the economy back to work. In the first two months of the financial year, Tax Revenues fell by 20%, the VAT take fell by over 30%. Government borrowing was £110 million. The Debt Management Office will issue over £300 billion of new gilts in the first six months of the financial year, to fund the crisis.
The Prime Minister said he would drink a pint of beer. Jacob Rees-Mogg recommended a yard of ale to facilitate social distancing. Chris Whitty the chief medical officer warned of alcohol abuse, from extensive consumption by the yard.
"Pubs could become super-spreading environments, if social distancing measures are ignored", said Chris Whitty. Cricket will be allowed later this month. Good news for cricket lovers dashed. The Chief Medical Officer warned, of players hugging bowlers, when they take a wicket!
The opening will come too late for some. This week, Bella Italia, Cafe Rouge and Las Iguanas went into administration. Carluccio's and Frankie and Benny's have already made the trip.
The Prime Minister launched his "New Deal" with a commitment to build, build, build. More hospitals, more schools, more police. The largesse will be limited. Both the Prime Minister and the Chancellor warned this week, the furlough scheme cannot go on forever.
Hopefully it may not have to. Andy Haldane Chief Economist at the Bank of England suggested the economy would be rapid and V shaped. The latest data from the IHS Markit PMI surveys on manufacturing and services, suggested a recovery in June, from the output lows of April and May.
Don't get too excited. In the service sector, new orders are still falling but at a much lower rate ...
China Recovery on track ...
The latest data from the Caixin China Composite Index suggest the recovery continues in China. The service sector expanded at the fastest rate for over ten years in June.
In the service sector, business confidence increased to a three year high. Both activity and new orders increased. The headline index increased to 58.4 in June, compared to 55.0 in May. The upturn was attributed to the easing of virus related restrictions and stronger demand conditions both at home and in export markets.
The broader composite index increased to 55.7 from 54.5 in May, indicating a sharp and accelerating increase in overall activity. Businesses are highly confident about the economic outlook, the epidemic is under control, restrictions have been lifted and the economy is recovering at a faster rate.
In the USA, the jobs data for June provided some relief. Almost 5 million jobs returned, as bars, restaurants and other businesses reopened. The leisure and hospitality sector increased payrolls by 2.1 million. Other jobs were added in retail (740,000) and manufacturing (356.000). The unemployment rate fell from 13.3% to 11.1%. The country has recovered about a fifth of the 22 million jobs lost to the shut down.The Congressional Budget Office suggests the unemployment rate is likely to remain in double figures through until the end of the year. The economy is expected to shrink by 5.9%.
Covid cases are rising rapidly in Arizona, Florida and Texas. The daily case load is increasing nationally. Almost 350,000 cases were recorded last week. 2.7 million cases have now been registered overall. The death toll has risen to 128,000.
The President was in sombre mood this week. Just four months to go to the election. The President is behind in the polls. In a "dark" speech at Mount Rushmore President Trump focused on the "left wing cultural revolution" that aims to rewrite U.S. history and wipe out U.S. heritage. Trump is in a battle against a new far-left fascism.
"Angry mobs are trying to tear down our statues, deface our most sacred memorials and unleash a wave of violent crime in our cities." "Four more years", the crowd chanted, four more months the hope for many ...
That's all for this week! Have a great, safe, week-end, eat out, help out ...
Brits will be allowed to travel to more than 15 countries this Summer. The government is set to agree a significant easing of travel restrictions, in and out of the U.K.
Large parts of Europe will be open to holidaymakers, without the need for a two week quarantine period, on arrival or return. France, Greece, Spain, Italy and Germany will be on the itinerary. Portugal is omitted, following a return to lock-down in Lisbon.
The news will be welcomed by the travel industry. Airlines and airports will receive a welcome boost to activity following the slump suffered under the Covid crisis. Matt Hancock issued a warning to all, this week. Drawing a line in the sand, visits to beaches will be banned, unless social distancing measures are maintained. Ice cream cones must be kept two meters apart, unless they are licked within a "two household size" bubble.
Liverpool FC also received a warning this week. The club could lose the Premier League title, if parties in the street continue. Snatch squads will be sent in, to retrieve the cup and return it to The Etihad, if street celebrations continue. Merseyside police issued a Section 34 Dispersal Order, following large gatherings in the area. More powers were granted as the Liver Building became the target of fireworks and flames. Social distancing guidelines were ignored as the crowd sang "You'll never walk alone, within a two meter zone".
The conflict between the people and the police has been drawn into stark contrast this week. The scenes on the Pierhead in Liverpool, the illegal raves in Manchester and the street clashes in Brixton, are a warning to government, there is little appetite for further lock-down measures. The focus has to be on getting Britain back in business and soon.
The Prime Minister has made it clear, there will be no period of austerity as activity returns. The focus will be very much on investment in transport, infrastructure and telecommunications with a green kicker. It will be a "decade of investment" and not a "decade of austerity". Infrastructure spending, will be brought forward, with an acceleration of the planning approval process. "No austerity for workers, those who paid the brunt of the pain, will not be made to pay".
Rishi Sunak, squashed hopes of an early cut to VAT or other taxes. The focus was very much of getting consumer spending back on track, without further fiscal stimulus for the moment. The Treasury will wait to assess the shape of recovery before any additional steps are taken.
The Chancellor will unveil his stimulus package in July. At the centre of the package will be a big skills agenda and a focus on the "green jobs" revolution. The Bank of England has made it clear, it is ready to step in, as the buyer of last resort, to fund the deficit spending.
So what will be the shape of the recovery? Jerome Powell at the Fed, suggested it will be a slow V , the IMF suggested this week it will be a "Whoosh". There is no doubt the recovery will be a V, it always is, or has been since serious records began in 1948. The government is taking all the right steps for recovery. If things go well, who knows, it may even be a "V with a Whoosh" ...
Man In The Shadows ... The Return from Tulsa
The President returned from Tulsa this week. The wild evening promised in Oklahoma didn't quite go as planned. Trump boasted over one million had signed up for the event. In the end, just 6,200 turned up for the trope.
The President droned on for over ninety minutes. The incoherent rant, included a ten minute plus explanation, of why he had trouble with the ramp at West Point, "It was slippery and he had leather shoes on."
Trump also explained why he had a problem, drinking water with one hand, during his speech. He had done a lot of saluting that day, his arm was tired and he didn't want to get his tie wet. Some people just do not appreciate the sacrifices, a commander in chief, has to make!
Brad Pascale, Trump's campaign manager had boasted of over one million tickets requested. It was the biggest data haul in campaign history. Mobile phone numbers were collected as part of the recruitment campaign. In the end, the additional staging for the crowd over flow was dismantled. The no shows on the day, were huge.
Trump had been trolled by the Grandma of TikTok. A lot or people who signed up, were kids using false names. Mary Jo Laup had published a video on the platform, urging people to book but not show up as a protest. The video went viral. The result was a huge success for protest and a disaster for the Trump campaign.The grandma of TikTok now works for Joe Biden.
Trump is now trailing by fourteen points in the polls. With just four months to go to the election, the campaign is in trouble. 2.4 million cases have now been identified as a result of the epidemic. The case load is rising, Trump is urging a slow down in testing as the big solution.
In Texas and Florida, the restrictions are being re imposed. Disney is postponing the opening, Apple is closing stores. New York is closing the borders to states with rising infections. Europe is closing the borders to visitors from the New World.
John Bolton's book arrived this week. It is a tough read. The President of China, had said he would like to work with Trump into the second term. Trump replied that people were saying, the two term constitutional limit should be repealed for him. Four more years may not be enough for the President. The first four years may well be enough for voters in the U.S.A., especially those on TikTok ...
That's all for this week! Have a great, safe, week-end, wash your hands, don't talk to strangers and stay in your bubbles!
The Covid-19 threat level was reduced from four to three this week. The virus remains "in circulation" but a "gradual relaxation of restrictions" will be enabled.
Pubs and restaurants will be allowed to open in July. Gyms and health clubs will follow suit. The two metre social distancing rule will be relaxed. The travel industry will benefit from quarantine free, "Air Bridges" with Spain, Portugal and Greece.
No hanging about at the bar in the pub; no cutlery on the table in the restaurant. A round of drinks will be purchased on a phone app. Food menus will be disposable, orders taken by waiters and waitresses "encouraged to wash their hands" each time they serve a different table.
The government is washing it's hand of lock down. The cost to the Treasury is just too great. 9,000 new cases were reported in the last seven days. Just over 1,000 deaths were revealed, as a result of the epidemic.
There have been 42,000 deaths in total, from 300,000 cases, a fatality rate of 14%. At peak the death toll was 8,000 in a week. The peak is well passed but the virus does remain in circulation. The next move down to level two, may just take a little more time.
This week, the ONS released the latest government borrowing figures. Borrowing in May was £55 billion. In the first two months of the year, the total was almost £105 billion. Total debt at almost £2 trillion exceeded the value of GDP for the first time since 1963.
Total revenues were down by 20%. VAT revenues have fallen by 34%. The costs of the furlough scheme and other Covid measures, increased expenditure by 50%. For the year as a whole, borrowing is now expected to rise by over £300 billion, pushing the total debt level to over £2.3 trillion. The DMO will issue almost £500 billion of debt this year, to fund additional borrowing and roll over existing debt.
The Bank of England stands ready as the buyer of last resort. This week the MPC announced an additional £100 billion of UK government bond purchases, taking the total to £745 billion. The Dire Sraits Policy of "Money for Nothing, Gilts for Free" continues. The Old Lady of Threadneedle Street, no longer wears a QE face mask. "Just buying the gilts directly, from the Debt Management Office", the reality, as we have long explained.
Ten year gilt yields closed up four basis points at 0.27. Sterling closed down $1.2353 in the week from $1.2561 at start. Against the Euro, the Pound closed lower, testing the 1.10 level.
Lots of other news this week on inflation, jobs, vacancies and earnings. Retail sales fell by 14% in May compared to 22% in April. Clothing and footwear sales were down by 60%, DIY sales were up by 5%. Online sales increased by 20% accounting for 33% of all retail transactions.
The jobs market remains in stasis at the moment as the furlough scheme underwrites the employment position. Vacancies fell to 476,000 in May, from over 800,000 at the start of the year. An ominous reminder of what could happen to unemployment levels. An urgent reminder of the need to get the economy moving again ...
Bolton Puts The Boot In ...
Former National Security Adviser, John Bolton put the boot into Trump this week. Extracts from his long awaited memoirs on life in the White House were released to the press. The White House is campaigning to ban the book entirely.
The President is not fit for office. Putin played him like a fiddle. Trump pleaded with President Xi to help his re-election prospects by buying more Soy beans.
The President was unaware the UK had nuclear weapons, asked if Finland was part of Russia and generally had no guiding principle, other than "what's good for the re-election campaign.
The Trump administration is considering charges against Bolton for releasing classified information. The President claims the book is a "compilation of lies and made up stories".
Trump said this week, "Bolton's book, is a compilation of lies and made up stories, all intended to make me look bad. Many (but not all?) of the ridiculous statements he attributes to me, were never made, pure fiction."
The Department of Justice claims, the book contains material, that could "reasonably be expected to cause damage, serious damage of exceptionally grave damage to the United States".
Mike Pompeo, rallied to the President's defence, calling Bolton a "traitor" adding "to our friends around the world: You know that President Trump's America is a force for good in the world".
Good to know that in view of the threat to resume Nuclear Testing, abandon the World Health Organisation and withdraw troops from NATO. The offer to negotiate between India and China reveals a sense of purpose and direction the world requires from President Trump's America.
Tomorrow the Trump campaign is back on the road in Tulsa. Despite warnings from health officials, the masks are off and the rally returns. Over 150,000 cases were reported in the US last week and over 5,000 deaths recorded. The President is promising a "Wild Evening". In America, the case load is rising, the rally may well accelerate the process ...
Output in the UK economy fell by 20% in April compared to prior month. Compared to prior year, total output fell by 24.5%. One quarter of output was lost to lock-down, as the Covid crisis hit.
Almost nine million jobs would have been at risk, without the government furlough scheme. Manufacturing output fell by almost 30%. Construction output fell by 44%. The leisure sector, including accommodation and food fell by 92%.
Within the service sector, retail business fell by 34%. Transport and Storage by 39%. Professional services fell by almost 20%. Arts and entertainment dropped by almost 50%. Education and healthcare did not escape the epidemic. The only sector to remain unscathed was public sector administration and defense spending, rising by a modest 1.4%.
In our monthly ZOOM webinar updates we have been warning of a shock to output in the second quarter of around 21%. The April fall is expected to be the nadir of the setback and shutdown. In May, construction activity increased in the month, manufacturing businesses were encouraged to return to work.
Next week, all retail businesses will be allowed to open. Boris Johnson is encouraging households to get out and shop. The Prime Minister is planning to visit a high street this week. He hopes to reassure shoppers it is safe to leave their homes and splash the cash. Yes get out and spend, the R(0) is less than one.
Fast food stores are reopening, vegan sausage rolls will once again be available from Greggs. The shock to output is likely to mitigate in the months ahead. Output in Q2 may well be down by 22% but our sector model suggests the drop in Q3 and will be around 12.5% and in the final quarter of the year, down by 6%.
For the year as a whole, we expect the economy to fall by 10% with a similar bounce back in 2021. Without an extension of the job protection scheme to the end of the year, the number of people out of work will rise to over 3 million, a rate of almost 10%. It seems likely the Treasury will shell out for the remainder of the year but not just yet. For now, the priority is to get Britain back to work. Some may not make it, as the job data next week will suggest.
It is time to quarantine the scientific advisers and clampdown on statements from the dissidents within the group. Who would have thought it would be possible to produce R(0) values to two decimal places on a regional and daily basis? It isn't of course. The data presents the highlight of spurious accuracy, a process in which numerical data is presented in a manner which implies a higher level of precision than is actually the case.
We have always claimed, applying mediaeval measures of containment to a contemporary economy, will drive us all back to the dark ages. The travel quarantine scheme will have to be ditched. Social distancing rules will be brought into line with the international guidelines. People have been scared out of the wits and into their homes. They must be persuaded to return to the light. The all clear sirens are sounding, most people cannot hear it yet ...
Want to know more? Don't miss our next online update on the 26th June. The Saturday Economist is now on ZOOM. "Informative, content rich and fun", the feedback from our attendees in May, Register today, don't miss out ...
Fed Forecasts Slow Recovery ...
Jerome Powell, Chairman of the Federal Reserve, released the latest forecasts for the U.S. economy this week. GDP is expected to drop by 6.5% this year. The unemployment rate is expected to be 9.5% by the end of the year.
The recovery will be slow but V shaped. The economy will bounce back in 2021 by 5%. Job gains will mitigate the unemployment rate to 6.5%. The recovery will continue into 2022 with further growth of 3.5% and a "u" rate of around 5.5%.
The recovery may not be enough to save the Trump administration. Joe Biden is leading the polls by 14 points. The President's approval rating is down at 38%. Clinton and Bush were in similar territory. A one term tag, awaits. Trump is desperate to return to the rallies and campaign trail. Florida will be the home of the next Republican convention. The viral risk was to great for North Carolina.
Anthony Fauci has warned of the dangers of political rallies as the epidemic continues to move across the USA. The President talks of the epidemic in the past tense, an "invisible enemy" conquered. Two million cases have now been reported in America with over 110,000 deaths reported.
The Trump campaign team are taking no chances. Delegates must sign an indemnity. "By attending the rally, you and any guests assume all risks related to exposure to Covid-19 and agree not to hold Donald J Trump for President Inc. liable for illness or injury". Voters will have to wait just until November, to hold the President to account.
News this week, Melania Trump delayed a move to Washington to avoid a disruption of son Barron's schooling. The delay also presented an opportunity to renegotiate a better prenup agreement."Taking care of Barron, The First Lady is taking no chances ..
Have a great, safe, week-end, wash your hands, don't talk to strangers and stay alert! Don't forget to join me for the monthly round up on line. The Saturday Economist now on ZOOM ... on the 26th June. Including our special features "White House WTF " "Market Wrap" and "Surveys Special" ...
"Open And They Will Come" ... the message to the retail sector. Shopper numbers jumped by over 30% as consumers rushed back to high streets and retail parks. Stores are re-opening to buyers with money to spend.
High Street footfall increased by 32% compared to last week's Bank Holiday numbers. Traffic to shopping centres increased by almost 40% according to Springboard research.
Consumers are prepared to wait for the privilege of spending money. Would be "DIYers" added a new dimension to the "B&Q" marque. Shoppers outside the IKEA store in Warrington formed a line almost one mile long, as it zigzagged across the car park. People queued from 5:30 in the morning allegedly. Always important to get an early start with flat pack, the rest of the day, so easily squandered in assembly.
To keep things in perspective, the number of shoppers at all destinations was down by 60% compared to last year. Not all stores are open as yet but there has been a change in attitude. According to Diane Wehrle, Springboard's insights director, "There has been a change in mindset. People are regarding lock down as not over but in it's closing phase".
Car showrooms and outdoor markets were allowed to open this week. Just as well, new car registrations in May were down by 89% compared to last year. Just 20,000 new cars were registered in the month. Optimists should look to the fourfold increase, on the 4,321 cars registered in April.
Consumers are returning to the stores and they will have money to spend. Household balance sheets are improving. A record £7.4 billion of unsecured debt was repaid in April. Consumers paid off £5 billion in credit card debt and £2.4 billion in personal loans over the month. Savings rates are increasing. There is a limit to how much can be spent on takeaway meals, alcohol and "Animal Crossing" upgrades.
Taylor Wimpey, one of the UK's largest house builders, reported a sharp rise in consumer interest, as it reopened sales centres and show homes this week. The national order book continued to increase. The company reported almost £3 billion of orders, on over 11,000 homes, a 6% increase on the same period last year.
As we explained in our Monthly Round-Up on Friday, the recovery in the UK will be much swifter than many expect. Problems will remain. The furlough scheme will be curtailed. Job losses will increase. The unemployment rate will increase to almost 10% by the end of the year.
Want to know more? Don't miss our next online update on the 26th June. The Saturday Economist is now on ZOOM. "Informative, content rich and fun", the feedback from our attendees last week, Register today, don't miss out ...
Eurozone Boost as ECB steps up ...
Christine Lagarde, President of the European Central Bank, announced a further €600 billion of bond purchases this week. The package of measures increased to €1.35 trillion in the current round.
The President warned the euro-zone faced "severe job losses and exceptional uncertainty". "There has been an abrupt drop in economic activity" it was noted.
Bond buys will run until June next year, six months longer than originally planned. A further stimulus is expected. "Net asset purchases will continue until the virus crisis phase is over". Almost €250 billion was spent in the first two months of the new scheme. The focus was on Italian bonds in the initial phase. The ECB is likely to buy €1.7 trillion of Eurozone assets this year, stepping up as the "buyer of last resort" for central governments in the club.
Angela Merkel, announced a fresh stimulus package for the German economy this week. $146 billion is to be spent to support the economy. VAT is to be cut from 19% to 16%. Cash support for families with children will be included. The rebate on the car buyers scheme will double. Money for climate change, innovation and the digital economy will follow.
The package is likely to increase pressure on the people's favourite Rishi Sunak to follow suit. The car industry is pushing for a "scrappage" scheme, to stimulate the car sector. The retail industry is pushing for a VAT reduction to stimulate the high street. The Chancellor will reserve action for the Autumn budget. The Treasury abacus is still rattling, as the cost of the furlough scheme, is brought to account.
Markets rallied this week. Our nine indices around the world all moved higher. The NASDAQ moved to an all time high. A test of 10,000 is sure to follow. Sterling rallied to $1.27, the trading range well defined.
That's all for this week. No talk about Trump! It has been such a quiet week in the White House Bunker.
Have a great, safe, week-end, wash your hands, don't talk to strangers and stay alert! Don't forget to join me for the monthly round up on line. The Saturday Economist now on ZOOM ...
Pubs could open sooner than July. Hotels and restaurants may follow. The chances of getting a haircut improved as the government lock down eases.
Now it's OK to see six members of a family in the garden, having a barbecue, drinking alcohol. Just don't drive 300 miles back home, if you are over the drink drive limit.
The nanny state thinks of everything. It will be OK to pass through the house, if the garden is at the back. It will be OK to return into the house, if you need to go to the toilet.
If you still have a toilet in the back garden, then so much the better. Just make sure to wash your hands and ensure all areas are thoroughly cleansed before leaving.This guidance applies to both the body and facilities apparently.
This new guidance applies from Monday. Please do not attempt to do this over the weekend. The police will act to deter grandchildren from seeing aged ones before 12:00am on the 1st June. Kids over the age of six, will be allowed to stay up late on Sunday night, as a special dispensation.
As suggested last week, social distancing guidelines may be ditched. The two meter will have to be modified if the leisure and entertainment business is to return to normality. Priti Patel will have to be quarantined of air-bridges are to be opened with Europe. The health secretary Matt Hancock said he was "a little more optimistic" about the chances of people going abroad for their summer holidays.
"Outdoors is safer than indoors" claimed Mr Hancock. He obviously hasn't driven around Richmond in a Range Rover wearing a Rolex. The R(0) must be higher indoors. Should we be sleeping outside? Follow scientific guidance and we may all end up sleeping on the streets, unless the economy is allowed to bounce back and soon.
Rushi Sunak continues to be the most popular member of cabinet but not for much longer. The furlough scheme is to be curtailed. The Chancellor is paying the wages of 10 million workers. The cost is greater than the health service. 8.5 million have signed up for the furlough scheme. 1.5 million are officially unemployed. Government borrowing will hit £300 billion this year. The furlough scheme will be trimmed in September and October. It will be knocked on the head in November. It really is time to get back to work ...
Disney Florida will open in July ...
Disney will reopen Florida theme parks in July. The Magic Kingdom and Animal Kingdom will open first, followed by Epcot and Hollywood Studios.
Visitors will have to wear masks. They will also be subject to temperature checks. (It will be very hot). Parades and firework displays will remain suspended.
The re-opening will be a test of whether large scale social gatherings can resume safely. Tens of thousands of Disney employees have been out of work since the parks closed. Disney revenues have taken a huge hit. 40 million workers in the USA are now unemployed. 20 million lost their jobs in April.
Las Vegas will reopen next week to ease the pain. After 70 days of lock down, the lap dancers will return to work. Sin City is gearing up to "Sin Again" says CNN Travel.
Nevada State Governor, Steve Ssisolak, said local casino resorts were set to welcome back visitors. "We are encouraging visitors to come and enjoy themselves and have a good time". Yes and say goodbye to their money.
The new ad campaign says, "The world has changed and Vegas is changing with it". The old slogan has been ditched.
"What happens in Vegas stays in Vegas" does not apply to pandemics ...
That's all for this week. Have a great, safe, week-end, wash your hands, don't talk to to strangers and stay alert! John
The government is under pressure to release London from lock down. The number of cases in the capital fell to just 500 over the last two weeks. The all clear signal looms, as the case load falls. Yes, the sirens may well be heard at the beginning of June.
At peak in April, London confirmed 1,000 cases per day. A steep decline has meant the average has fallen to just 50 daily. Just one case was recorded last Thursday.
The excellent symptom tracker research at Guys Hospital under Dr. Tim Spector, suggests 2.2 million people were infected in the UK at the beginning of April. The average over the last few days has now fallen to 250,000. The Office For National Statistics data set suggests just 150,000 are infected, the vast majority north of Birmingham.
Alistair Benn in a Reaction Weekend update, interviewed Professor Sunetra Gupta of Oxford University. Guptra is author of the model which states that "vast swathes" of the population had already been exposed to the virus by the time lock down began. "In almost every context, we have seen the epidemic grow, turn around and die away, almost like clockwork ... to me that suggests that much of the driving force was due to the build up of [natural] immunity."
Social Distancing Measures could be ditched or certainly eased as the lock down eases. Public Health England suggested this week. Yvonne Doyle, medical director at PHE, confirmed the organization is amassing evidence to evaluate if the 2m rule is "absolutely necessary". The two meter rule is a "precautionary approach" and could change to allow closer contact! Really?
The World Health Organisation, together with France, Hong Kong, Singapore and China all seem to think one metre is enough. Pubs, clubs and restaurants will welcome the change, allowing life to return to a degree of normality in the leisure sector.
We are in the strange phase of transition. The guidelines have to be clear, concise and logical. The UK social distancing rule, is an international anomaly. Travel guidelines to the seaside, far from clear. Visiting grandparents in the North East of England appears to be OK for some but not for others. Why when we get there should we only see them, one at at time, in the garden, under police supervision?
Priti Patel added to the confusion this week. Welcome to Britain pamphlets would be offered to visitors. Travel in your own vehicle, stay in one place, quarantine for two weeks and see nobody for 14 days. The police will check up on your movements or lack of them. Cressida Dick, Commissioner of the Met was swift to social distance from the policy. May the force be with you but not on this one Priti.
Exceptions are to be made for farm workers and fruit pickers but not for business and tourism. Strange the priorities as policy unfolds, slowly to unravel as reality dawns ...
Borrowing Hits £62 billion in April ...
Economic policy was swift to unfold in April ... Eyes in Treasury must have been watering. Government borrowing surged to £62 billion. Revenues fell by 26%, expenditure increased by over 50%. Total debt increased to £1.9 trillion up to 98% of GDP compared to just 80% in July last year.
Retail sales dropped in value by over 23%. The VAT take fell by 44% as many businesses opted for deferred payment. The overall tax take fell by 36% as the economy foundered. GDP is expected to fall by 25% to 30% in the second quarter.
Rishi Sunak is now the most popular character in cabinet. The Chancellor is paymaster for almost one third of the working population. 1.5 million are unemployed, over 2 million have applied for Universal Credit. 7.5 million are now on furlough.The scheme will be extended into the third quarter of the year. The cost is expected to be £150 billion in a full year. It cannot continue for long. Businesses will have to chip in before the year is out.
The gloves are off in Treasury. This week, the Chancellor warned this is a severe recession, the worse is yet to come. The unemployment rate will soar if the furlough scheme is cut back without a return to normality and soon. The release from lock down will continue. Ditching of social distancing will follow. The messaging has to change. It really is safe to leave home and get back to work ...
That's all for this week. Have a great, safe, week-end, wash your hands, don't talk to strangers and stay alert!
China Slowly Returns to Normal ...
The Disney theme park in Shanghai has re-opened. Not quite business as usual, Mickey Mouse cannot pose with customers, selfies with Snow White are out of the question.
Life in the leisure sector confronts the Covid reality. Face masks must be worn at all times, temperature checks take place at the gate. Timed entry slots must be followed. Visitor numbers are limited. Capacity in the park is limited to 30% of the usual 80,000. Children's play areas and theater shows remain closed.
No street parades, no night shows, no close ups with characters. No touching the animals like Bambi and Thumper. Mr Sneezy remains in quarantine, that sort of thing. Despite the limitations, tickets sold out within minutes. Just as well, Disney needs the cash. Net income fell by 91% in the first three months of the year.
China is slowly returning to normal. Industrial production increased by almost 4% in April. Car sales and smartphone sales are on the rise. Household consumption remains soft. Retail sales fell by 7.5% in the month. Almost one in five migrant workers have not yet returned to work.
Analysts talk of small and gradual improvements. President Xi claims, "It is now time to get the economy back up and running". Infrastructure spending has increased by 5%. The Party plans a move away from traditional industries such as coal. Now is the time to develop an "affluent society" for all it is claimed.
Probably just as well. Chanel and Louis Vuitton are increasing prices by over 15% on luxury items in Asia. High end fashion houses have reported brisk business in South Korea and China as stores re-open.
Tensions with the West are augmented as the White House seeks to blame China and anyone else for that matter, for the Covid outbreak. Huawei remains a cause of concern. The Trump administration said it would impose further export restrictions on sales to the Chinese tech leader. Trade tariffs remain under threat. Trump threatened to cut ties with China completely in an interview with Fox news this week, saying he had no interest in talking to President Xi right now ... not my friend ...
Hair Dressers Back in Business ...
Hurray for the hirsute! Hairdressers will be allowed to open in July according to the latest statement from government. As expected, garden centres opened up this week. Further retail concessions will be made from the end of the month.
Schools may open in June. Travel restrictions have been eased. We are in the strange twilight zone of transition. "Stay indoors", no longer the mantra, "Stay Alert" the new vogue call. "Stay Away" the plea from holiday resorts and beauty spots.
Yorkshire and Cornwall tourist boards have asked visitors to stay away. The Lake District National Park has joined the call, to minimize the influx as lock down restrictions are eased. The National Trust is re-opening car parks, Jersey Zoo is open to visitors. Life is returning slowly to normal. London could be Covid free in weeks it is claimed, as the number of daily cases fall to 24 and the R(0) drops to 0.4. The all clear could be sounding sooner than most think. Just as well ...
The latest data from the ONS suggests the UK economy slumped by 2% in the first quarter. Output in March fell by 6%. Manufacturing fell by 10%, transport and storage fell by 15%, accommodation and food fell by 30%. The fall in March is just a taste of what is to come. We expect a drop in output of over 20% in Q2. The OBR, the Bank of England and now NIESR, expect a shock to output averaging 30%.
JCB announced layoffs this week with world wide sales down by 50%. The British Retail Consortium suggests retail sales fell by 19% in April. WH Smith report sales down by 85% as stores remain closed. William Hill demonstrated some flexibility with betting now focused on table tennis, darts and Belarusian football.
The economy is in recession but the recovery will be swift. Output for the year as a whole will be down by around 12% but a steady recovery will follow over the next twelve months. Having spent eight weeks terrifying the population about the imminent threat to life, it will take a little more than a Sunday pep talk to convince the nervous it really is time to get back to business ...
Now is the time to get the economy back up and running.
That's all for this week. Have a great, safe, week-end, wash your hands, don't talk to strangers and stay alert! J
Garden centres will open on Wednesday, according to the latest information from government. Boris Johnson will make the critical announcement on Sunday evening. Over the borders in Wales, gardeners will have a two day start. The tills will be ringing from Monday on.
Manufacturers will be urged to get back to business. Toyota will open the engines factory following a two month shutdown. Bentley will be back in business on Monday. Jaguar will be back in action mid month.
The government has formally extended the lock down for another three weeks. Cracks are appearing. The Prime Minister will announce the road map, to ease restrictions in the weeks ahead. The kids could be back in school by June. Fish and Chip shops could be back in business. At the Downing Street press conference on Friday, environment secretary George Eustace revealed it was now safe for take away shops to reopen. "Drive thru restaurants like McDonalds are made for social distancing" he explained.
McDonalds and KFC are trialing store openings, Greggs pulled back on plans over fears of crowds in pursuit of vegan sausage rolls. The "Stay at Home" message may be abandoned. The "One Exercise Per Day" message may be ditched. Picnics, trips to the park and outings in the countryside may be permitted. Scientific advisers may be allowed visits, from special friends, that sort of thing.
The family bubble plan has been popped. The idea that extended kinship groupings could be allowed to meet for Sunday lunch and special occasions has been dropped. Ministers feared family feuds over who would be in whose bubble, could augment social tensions at an already difficult time.
Matt Hancock added to the confusion speaking to Kay Burley on Sky News. "There is strong evidence that outdoors, the spread is much lower. So there may be some workaround that some businesses, for instance cafes, especially over the summer, may be able to put in place." Tim Martin, take note.
Sajid Javid, the former chancellor, urged the Prime Minister to "run the economy hot". Older people should be asked to stay inside, allowing younger people to get on with their lives" he explained. "They could help the rest of us by rebuilding the economy."
Mixed messages add to the confusion about just what happens next. Too many ministers taking turns at the daily briefing add to greater confusion. Reliance on the R(0), fiddling the testing targets and now an over reliance on a socially intrusive tracking app will not help.
The Prime Minister has a difficult task to explain the way out of lock down, tip toeing over the stepping stones to recovery. The economic argument is becoming imperative ... the time line is running short ...
Car sales drop by 97% ...
Car sales slumped by 97% in April. Just 4,000 cars were registered in the month, compared to 160,000 last year. 6.3 million workers have now been furloughed, a further 2 million are now on benefit. The Chancellor has made it clear the burden on state is unsustainable. The furlough scheme may be tailored in terms of sector and quantum, into the third quarter.
This week the Bank of England added to the gloom. The Bank scenario forecasts assumed a drop in output of over 30% in the second quarter. GDP for the year as a whole would fall by around 14%, with unemployment increasing to over 7% in the final quarter of the year. Household consumption is expected to fall by 14%. Business investment is expected to fall by 26%. Economists are involved in a series of "how low can it go" forecasts. This week the bank has scooped the pool, as new Governor Andrew Bailey set the tone.
Some good news this week. Ocado reported a sales surge of over 40% over the past two months. Online deliveries had soared. The company is struggling to meet customer demand. Warehouse capacity had been increased to 110,000 orders per week from 80,000 at start of year.
Halfords reported an increase in cycling activity as a result of the lock down. Profits were predicted to be at the upper end of forecasts, following stronger than expected sales towards the end of the financial year. Most of the chain's shops and auto-centres remain open, with recommended social distancing measures in place.
The Card Factory reported an increase in online sales of over 250%. Sales of personalized gifts has increased by over 50%. The company is scrapping the dividend to preserve cash and slowing the scheduled plans for new store openings. All store staff have been furloughed, reduced rents are in negotiation and purchases from suppliers have been cut. The reshaping may well be the model for recovery for many, in the way out of lock down ...
That's all for this week. Have a great, safe, week-end, wash your hands and don't talk to strangers, J
The Saturday Economist
John Ashcroft publishes the Saturday Economist. Join the mailing list for FREE weekly updates on the UK and World Economy.
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