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
Boris Johnson is back in action, the Prime Minister firmly in charge. The message is clear, we are past the peak, on a downward path, through the tunnel, into the light, where sunshine and green pastures await.
The virus has been wrestled to the ground. Now to spray the disinfectant of delivery, to eliminate the threat. The Health Secretary has reached the target of 100,000 tests per day. Albeit the Royal Mail assisted the challenge. 27,479 home testing kits were rushed out by post, to meet the target.
One million tests have now been carried out. Just over 750,000 people have been tested. Approximately 180,000 tested positive. Almost 25% of the "sample" population were infected at the time of testing. Slowly we are beginning to realize, the infection rate may be much higher, than we are led to believe. It could be as high as 20% of the UK population. This is good news for the exit strategy and puts the fatality rate, tragic though this is, into a much better perspective.
In 1918, the infection rate for the Spanish Flu in the UK was 20%. On the Diamond Princess, the infection rate was 20%. In New York, based on a sample of 3,000 undertaking antibody tests, the data suggests 20% of the population of New York may have been infected.
Data from the excellent Covid Symptom tracker research at Guys Hospital led by Dr Tim Spector suggests 2.2 million people in the UK were infected with C-19 on the 2nd April. Since then the number has fallen to just over 300,000. Using the data and back casting, the implied data suggest some 12 million people may have been infected, by the time the 90 day episode is complete.
The viral models are based on SIR mathematics. The Population at time (t) is either Susceptible, Infected, or Recovered. No thought of those with natural immunity. The population first divides into those with natural immunity and those who are susceptible. We know the NI rate among the young, is extremely high. The natural immunity rate in the population overall may well be as high as 80%.
We always suggested the case for relaxation would be revealed at the end of April. Further relaxation and the all clear signal would emerge at the beginning of June. Ministers in the UK have to get Britain back in business and soon. This week, Dr Mike Ryan, from the World Health Organisation, praised Sweden as a model to implement a return to normality.
Wetherspoons plans to open pubs next month. The government will relax the lock down in some way over the May bank holiday. Social distancing guidelines will be modified. Too many industries including travel and leisure will be crippled financially by controls on capacity, if the guidelines on SD are not eased.
Test, track and trace is the new mantra. Shoving a swab down your throat, then up your nose, wrapping it up in plastic, to be tested in a distant lab, seems a bit old hat. New technology developed at Guys and South Korea is here to assist the process. Strange that NHS England is reluctant to work with the Guys App smartphone tracker ...
A Global Recession is on the way ...
The IMF have warned of a global recession, unlike anything experienced in the 1930s. Businesses will go bust on a huge scale and unemployment will spiral.
The International Labour Organisation this week warned that half of the global workforce could lose their jobs. 1.6 million workers were at immediate risk of losing their livelihoods because of the pandemic.
In the USA thirty million people are now out of work. Almost 20% of the workforce have lost their jobs since the end of March. Jerome Powell chairman of the Federal Reserve, said that economic activity would drop at an "unprecedented" rate.
In the UK, we expect output to fall by 20% in the second quarter. Over 4 million workers have been "furloughed". Without government intervention, the claimant count would have increased to 15%. The full shock of a 20% shutdown would see the rate exceed 20% by the end of June.
With a moderate return to work policy, the output shock would fall to 12% in Q3 and 5% in Q4. Even so, unemployment is likely to be 7.5% in the final quarter as GDP in the year falls by 10%.
The government has to get Britain back in business. The CBI, British Chambers of Commerce, the FSB and Make UK have made this abundantly clear. As we said from the start, applying mediaeval measures of isolation, lock down and containment, to a contemporary economy, will drive us all back to the dark ages.
A global recession is on the way to accelerate the process. Time to review the scientific advice, ease the lock down and find a way back in ...
That's all for this week. Have a great, safe, week-end, wash your hands and don't talk to strangers,
The Saturday Economist
John Ashcroft publishes the Saturday Economist. Join the mailing list for FREE weekly updates on the UK and World Economy.
The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The presentation should not be construed as the giving of investment advice.