Government borrowing in the first six months of the year, increased to £208 billion. That's an increase of £175 billion on prior year. Total debt increased to £2.1 trillion at the end of September, that's 104% of GDP.
In the first six months of the year, the Debt Management Office issued £306 billion of gilts. Net of redemption, new gilt issuance totaled £240 billion. So how was that funded?
The Bank of England purchased some £268 billion of gilts over the period. The Old Lady was forced to step in as the "buyer of last resort". The pretense of QE abandoned, the minutes of the MPC meeting now openly talk of the "purchase of government bonds". According to Andrew Bailey, Governor of the Bank of England, "the government would have struggled to fund itself" without central bank intervention.
In the current financial year, markets expect total borrowing to increase to £325 billion. The level of debt could increase to £2.5 trillion by the end of the next financial year. Central Bank holdings may increase to £1 trillion to finance the deficit. The process of "Dire Straits Economics", that's "money for nothing, gilts for free", is expected to continue.
For the moment, markets are unconcerned. Moody's may have lowered the UK credit rating from Aa2 to AA3 this month but Sterling closed higher against the Dollar, at $1.3029. More spending is expected as the "Fears for Tiers" spread.
The Chancellor was forced to announce a further support package for business this week, the fourth in as many months. Criticism of the end of the furlough scheme mounted. The chancellor was obliged to expand the Job Support Scheme. The new plan will pay a larger share of workers' wages, with more money for the self employed and grants for businesses, forced to close in areas affected by lock down measures.
The latest data suggests the recovery is still intact. For the year as a whole the economy is expected to contract by 10% with growth of 6.5% to follow in 2021. The big question is just how many jobs will be lost by the end of the year. The latest offerings from Treasury may have little impact over the next few months ...
That's all for this week! Have a great, safe, week-end ... Hands, Face and Space ...
Don't forget you can now listen the The Saturday Economist Live as a weekly Podcast. The TSEL monthly review will be available on our media channel at the end of the month.
Ten weeks to go to the end of the transition period, the Prime Minister has realized a Canada style deal with the EU, is not on offer. "A relationship based on friendship and free trade will not be available from our partners of forty five years." said the PM.
"The EU has refused to negotiate seriously for much of the last few months" said Johnson, (and simply agree with the UK government he could have added). Michel Barnier has been told not to take the train to London next week. Mind the gap! A level fishing ground, remains the catch.
Boris Johnson has reached the conclusion, it is time to prepare for a deal more like Australia. No car exports, no involvement in Airbus and no syndication for big pharma, presumably.
The deal would be based on the simple principles of global free trade. That's a no deal in any other language. The comparison with Australia is of little comfort. Exports from Australia to the EU were worth some £25 billion in 2019. Compare that to £172 billion of UK exports to the EU in the same year and it's small change.
"With high hearts and complete confidence, we will prepare for a future, in which we will prosper mightily, as an independent, free trading nation, controlling our own borders, fishing our own fisheries and setting our own laws."
So what of the city of London? According to Phil Aldrick in the Times today, the financial services sector has been betrayed by a government which no longer cares. "There is nothing in the negotiations, for a sector which accounts for almost 7% of GDP, employs one million people and pays £75 billion per year in taxes. Fishing in comparison, accounts for 0.1% of GDP, employs 24,000 people and is reliant on state aid.
Johnson promised in December last year, he could "absolutely guarantee we will get a deal, not just any deal but a great deal". He had a deal which was oven ready. Now time is running out. Whatever happens in the remaining weeks, there will be, no deal for financial services. The bankers are preparing to relocate to Europe.
For parts of the manufacturing sector, relocation may also become an option. Despite the reassuring words of the Prime Minister, Aussie rules are not O.K. ...
The IMF released the latest World Economic Outlook this week. Gita Gopinath, Chief Economist was on hand to deliver the news.
The global economy is expected to contract by -4.4% this year with a recovery of over 5% anticipated in 2021. This is slightly better than the outlook in June, which predicted a setback of -4.9% this year and a recovery of +5.4% in 2021.
China is now expected to grow by almost 2% in the current year. Growth of just 1% was expected in June. The setback in the USA has been mitigated with the loss of output of -8% forecast in June, now expected to be just over -4% in October. US Government borrowing of $3 trillion dollars in the financial year just ended will have assisted the process.
The setback in the EU will be around -8%, the loss of output in the UK around -9.8%. Concerns for the Indian subcontinent have increased as the total Covid cases increased to 7.5 million. Output is now expected to fall by 10% in the year.
The IMF warns, although the global economy is "coming back", the recovery will be long, uneven and uncertain. Economies will face difficult paths to pre-pandemic levels of activity. Preventing further setbacks, will require that policy support is not withdrawn prematurely. "It is important for governments to continue to support viable firms, as millions of jobs are at risk."
It is a message all too pertinent for the Chancellor Rishi Sunak. The latest data for the UK suggests the unemployment rate increased to 4.5% in August with 1.5 million out of work. The increase in the claimant count to 2.7 million in September, suggests much worse is yet to come. The furlough scheme ends this month, with the UK economy in tiers ...
That's all for this week! Have a great, safe, week-end ... Hands, Face and Space ...
Just when you thought it was safe to leave the bubble and nix the rule of six, the traffic light system is coming. Fears for tiers and local lock-down abound. Pubs and restaurants may have to close in Northern Cities. More job losses seem inevitable in the hospitality sector.
The Chancellor is already handing out lifebelts, on a cruise ship heading for the ice. The Chancellor has announced a new Job Support scheme starting in November. The Treasury will pay one third of the wages of those in businesses forced to close; Closures as a result of new measures, yet to be announced. The support scheme will last six months and cost around £2.4 billion.
This is not an extension of the furlough scheme. It should have been. The cost of £2.4 billion of the new scheme, should be added to the £6 billion for the Job Retention Scheme and the £9 billion for the job retention bonus. Scrap three schemes and the Treasury could have saved £17.4 billion.
Running the initial furlough scheme though until Easter next year would have cost just £20 billion. Money well spent in a year in which Public Sector Borrowing will exceed £300 billion. Uncertainty now abounds in the pubs and restaurant sector. Not just the Turkeys will be on reduced rations in the run up to Christmas.
Good news from the latest GDP data released this week. The Eat Out to Help Out scheme boosted growth in the food and accommodation sector in August. Manufacturing and construction also performed better than expected. Latest data from the IHS Markit series suggests strong growth continued into September.
UK construction activity increased sharply in the month. The manufacturing recovery continued as output and new orders increased. Business activity in the service sector increased for the third successive month. B2B activity was the focus of main gains. The hotel and leisure sector reported a downturn, as the government stopped the support for family food outings.
Given the latest data, what shape will the recovery be? It's a V. It has always been a V since 1933. The recent data has not changed our outlook much. If anything we have upgraded our sector forecasts slightly. The details are listed below.
Output in the second quarter was down by 20%. We expect a recovery by halves this year. Output down by 10% in the third quarter, then down by 5% in the final quarter of the year. For the year as a whole, output will be down by around by almost 10%. A strong bounce back is in prospect for 2021 especially from Easter onward ...
Who could have thought it was a good idea to put the President on Steroids? Trump received an exotic cocktail of oxygen, the red blood of ten young men and a dose of experimental drugs from America's finest pharmaceuticals this week.
At the military hospital, Trump received a dose of Remdesivir, the experimental drug, not yet known to be safe or effective as a treatment for Covid.
Conley, the President's physician disclosed that Trump was also given the steroid dexamethasone after his blood oxygen level dropped twice in recent days. Side effects of dex include, mood swings, behavioral disorders and cognitive disability apparently.
At the hospital Trump posted a video on Twitter, "I think I am doing very well" (whoever I am), in a second video Trump announced, "I am feeling better and will be back soon". The President escaped once for a drive by photo shoot around the hospital block. Duped into thinking he was returning to the White House, the Presidential Guard had him back in a Walter Reed White Coat within the hour.
"Do not drive, operate heavy machinery or run the largest economy in the world" should be the Surgeon General's warning. Trump on steroids could not be restrained. Someone smuggled in a Smart Phone. Trump ordered a Big Mac and Marine One. A dramatic flight back to the West Wing followed. An even more dramatic scene on the balcony followed.
Flanked by American flags with the Washington Monument in the distance, Trump saluted the brave people of America. So good, they filmed it twice, then set it to music. Trump ripped of his mask, wheezing slightly.
It was a scene set from "Argentina", Madonna as Eva Peron. "I had to let it happen" sang Madonna, "I had to do it" said Trump. "As your leader, I had to do that" "I knew there was a danger but I had to do it. I stood out front. I led. I knew there was a risk, there was a danger but that's OK."
"I learned so much about Coronavirus," said Trump, [not like Joe Biden he wore a big huge mask all the time]. "I think this was a blessing from God, that I caught the virus". A blessing for us all there will be no second debate. "Don't cry for me Amereeka," sang the President under his breath "the truth is I'll always love me!"
That's all for this week! Have a great, safe, week-end ... Hands, Face and Space ...
Britain and the EU are to begin two more weeks of intense negotiations. Both sides have indicated a deal is in sight. Boris Johnson, is to hold, one on one talks, with the lady in the blue mask. Ursula von der Leyen, head of the European Commission is ready to step up the action, to achieve a solution.
A level fishing ground appears to be the catch. Boris Johnson said last night he was pretty confident of striking a deal. "The chances of a deal, are very good, if everyone exercises some common sense" and agrees with me.
Angela Merkel, the German Chancellor said "We are in constructive mood ... it is up to Britain to decide this freely" and agree with us. Government sources suggested the Prime Minister was keen to get an agreement on key differences. "We are in a better place than we were", "There is a genuine desire to make this work", "The general mood music is good", "Where there is a will there is a way". The expectation is we will have a couple of weeks of intense talks and see where we are at."
Both sides want to narrow the differences, allowing leaders to consider the trade-offs. Lord Frost, the UK's chief negotiator, said the government expected more movement from Brussels. Michel Barnier, his EU counterpart said "persistent, serious, divergences remain".
Johnson explained "We want a Canada style relationship. We have been members of the EU for 45 years" [and we captured Quebec from the French in 1759] he could have added. "I can't see why, the EU can't have the same deal with us. So I am pretty optimistic."
Google "Best Fishing in Canada" and Nunavut in the North West Territories, features. It's a close second to the Queen Charlotte Islands in British Columbia. That's a long haul for the fishermen of Spain and France. Persistent, serious, divergences remain including fishing quotas, state subsidies, rules of origin and the Irish border. It may be best to let the European Court of Justice arbitrate.
We are now four years on from the decision to leave the EU. Just a few more weeks of intensive talks and then we will see where we are at ... the Prime Minister is pretty optimistic ... he may even relax social distancing in time for Christmas ...
Wuhan, the city at the centre of the Chinese outbreak, is booming again, according to a report in the Times today. Six months following the lifting of the lock-down, Wuhan is throbbing. Shopping centres are bustling. Trains are packed and airlines are adding flights.
The city has been officially free of coronavirus since the beginning of June. The local daily newspaper declared "Wuhan is full of vitality. People's faces are brimming with smiles of happiness". That's nice to know. Yes, there is life after lock-down.
No smiles of happiness in the White House. The President and the first lady have tested positive for Covid. Initial reports suggested the Trump was asymptomatic. Later, he was experiencing mild symptoms. Then he was moved to Walter Reed hospital in an "abundance of caution" and a Marine One helicopter.
Late Friday evening, the President's physician, reported, the President was fatigued and the first lady has a mild cough and headache. Dr Conley said later in a memo, the president had completed his first dose of remdesivir. No plans to administer hydroxychloroquine or to inject bleach for that matter but he will wear a mask.
The President tweeted late Friday "Going well I think". It remains unclear when the President will be able to return to the campaign trail and if he will be able to participate in the two remaining debates with Joe Biden.
Vice President Biden said he was sending prayers the Trumps will recover quickly. "This is not a matter of politics. It is a bracing reminder to all of us, that we have to take this virus seriously".
With luck further debates will be avoided. The first was described by Jake Tapper of CNN as a "hot mess inside a dumpster fire, inside a train wreck". He went on to say "That was the worst debate I have ever seen. In fact, it wasn't even a debate. It was a disgrace and it's primarily because of President Trump."
If the President remains in hospital there will be no more debates, no more campaigning, He may even have to use a postal ballot! Let us hope POTUS, FLOTUS and all staffers recover soon. White House Lives matter ...
It was always going to be a difficult week. The Monday warm up act was Sir Patrick Vallance and Chris Whitty. The Chief Medical advisers, were there to set the tone.
The rate of Covid infections is increasing. "If the current level of infection doubles every seven days, there will be 50,000 cases every day by mid October."
Continuance at the same rate would mean over one million infections per day by mid November. By Christmas, the whole population of the UK would have been infected. President Trump's concept of "Herd Mentality" achieved.
It was left to Ed Conway on Sky News to point out the current rate extrapolation would mean just 13,000 cases by the October hurdle date, not the 50,000 as claimed. Detail did not really matter. The stage was set for the Prime Minister to deliver the news of further lock down measures across the U.K.
Pubs and restaurants must close by 10.00 pm. Staff would be discouraged from returning to the office. Business conferences, exhibitions and large sporting events, would not be reopening as planned. Face masks must be worn. No more than fifteen can attend a wedding, thirty may continue to attend a funeral.
The measures were to last for six months. No reprieve for Christmas. London placed on a high risk list. Mayor Sadiq Khan warned, further lock down measures could be imposed in the capital.
The measures were a further blow to the hospitality and leisure sector and to an events business already on the floor. The hand over team were readying the stage for the Chancellor to ride to the rescue. The planned budget was scrapped. Rushi Sunak announced his "Winter Economic Plan".
Would the furlough scheme be extended as hoped? At a projected cost of £52 billion by the end of October, so what of a further £20 billion into Easter next year.
Official figures on Friday would reveal borrowing for the year to date had already reached £175 billion. The OBR forecast of £320 billion for the financial year well in reach.
The Chancellor's Winter plan revealed further extension of the VAT cut for the hospitality sector. Generous cash flow provisions were added for VAT and Loan repayments. The furlough scheme would come to an end as planned. The complex Job Support Scheme would be introduced. At best the jobs crisis may be postponed to the end of January.
"I cannot save every business, I cannot save every job" warned the Chancellor. Sector specialists warned of one million jobs lost in the hospitality sector and 300,000 in the events business. This week, Lord Wolfson, head of Next, warned of hundreds of thousands of job losses in the retail sector, as the online shift continued.
The unemployment rate is set to rise to over 8% by the end of the year. The number of people out of work could rise to three million by Christmas. In reality our forecasts for the current year have not changed much. Our hopes remain, for a positive bounce back next year ...
The President was asked at a press conference this week if he would commit to a peaceful transfer of power after the election. Trump declined to answer, in the affirmative.
No surprise really. This would be an admission of defeat. Instead the President managed a non committal response and a complaint about the election process.
"Well, we're going to have to see what happens," he said. "You know that I've been complaining very strongly about the ballots, and the ballots are a disaster,"
"Get rid of the ballots and you'll have a very peaceful transfer, there won't be a transfer, frankly. There will be a continuation. The ballots are out of control." Without the ballots there would be four more years for Trump.
President Trump refuses to commit to a peaceful transfer of power if he loses. But his team is developing plans for that very outcome. According to Politico, one of the most organized and functional parts of the Trump White House, is the West Wing office, planning the potential presidential transition
As the president rails against mail-in ballots and “Sleepy Joe Biden,” assistant to the president Chris Liddell has spent weeks mapping out a possible handover of power. Senior Republicans offered reassurance ...
“The winner of the November 3rd election will be inaugurated on January 20th,” wrote Senator Majority leader Mitch McConnell. “There will be an orderly transition, just as there has been every four years since 1792.”
Are the Republicans already preparing for defeat? The race to appoint a conservative to the supreme court, ahead of the election is evidence of concern. The move has angered many Democrats who believe a Supreme Court judge should not be nominated until after November election.
In 2016, Republicans didn't let President Obama fill the opening with his pick. This year, Senate Republicans are readying for confirmation hearings in two weeks, with a vote in the full chamber expected before Election Day. So what's the rush ... if you are so sure you have a winner in the White House?
Retail sales increased by almost 3% in August. Excluding fuel, total sales volumes increased by over 4%. DIY led the charge. B&Q and others benefited, with DIY sales up by 20%. Garden centres were blooming. Green fingers tapped the tills with a 17% increase in horticultural goods year on year
The public was drinking less apparently. Alcohol sales were down by 6% compared. Alternative medicine provided some relief. Chemist sales were up by 44% and medical goods were up by 17%.
The upturn in the housing market, boosted sales of white goods and floor coverings. Pride in appearance appeared to take a back seat. Sales of clothing, cosmetics and footwear were down over 15%. Watches and jewellery sales were down by 12% in the month.
The surge in online sales continued. The year on year growth was over 50% accounting for 28% of all retail transactions. Online food sales were up by 90% year on year, accounting for 10% of all food action. The pressure on retail continues.
John Lewis announced the closure of four more Waitrose stores this week. In July the company revealed, that eight John Lewis stores would close, including the flagship Birmingham store. Online sales increased by 73% within the group. Radical restructuring will continue within the retail sector.
Book sales were up by 18%. Analysts must have been rushing for the textbooks as the Bank of England suggested it was reviewing once again the possibility of negative interest rates. The MPC decided to maintain the level of interest rates at 0.1% for the moment. Inflation CPI basis slipped to 0.2% in August. The Eat Out to Help Out scheme explained some of the price discount. A stronger Sterling and a weaker oil price undoubtedly helped.
Music sales slipped by 8% as streaming services continued to increase share. A neat segue to point out you can now get The Saturday Economist as a Podcast, available on Apple, Google, Amazon, Spotify and more. Check out the details below ...
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