Bank of England warns of worst contraction in centuries, as economic activity slumps - as it happened

Graeme Wearden and Jasper Jolly

from on 2020-04-23 17:29 (#52HT5)

UK is suffering fastest and deepest slump in "possibly several centuries", warns BoE policy maker Jan Vlieghe

6.25pm BST

Stock markets have gained ground on Thursday as investors look beyond the current certain recessions in major economies towards hopes of gradual recovery.

European stock markets, including the FTSE 100 gained some ground, as did Wall Street. However, US stocks have been dented by the FT's report that a promising antiviral drug has not performed as expected in trials in China.

5.59pm BST

One of the drugs that scientists hoped might help fight Covid-19, remdesivir, has not performed well in clinical trials, according to the Financial Times ().

US stock market indices have quickly lost some of their earlier gains after the report was published. The S&P 500 is up 0.6% and the Dow Jones industrial average has now only gained 0.7%.

"In this study of hospitalised adult patients with severe Covid-19 that was terminated prematurely, remdesivir was not associated with clinical or virological benefits," the filing said.

5.45pm BST

The oil price rebound puts West Texas Intermediate futures pricse on course for their best day on record apart from... the previous two days.

WTI is up by 29%, beaten only by Tuesday's 127% gain and Wednesday's 38% daily increase.

5.23pm BST

It's all going swimmingly today on US stock markets - even in the teeth of more spectacularly bad economic data from the world's largest economy.

The S&P 500 is up by 1.2%, while the Dow Jones industrial average has gained 1.4% and the Nasdaq is up 1.3%.

5.10pm BST

Oil markets are at it again in what will go down as a truly historic week for the commodity.

Brent crude futures prices, the international benchmark, have rallied by $2 per barrel today - a heady 10% gain - to hit $22.39. However, such has been the turmoil on oil markets this week that it still remains far below Tuesday's opening price of $26.33.

4.32pm BST

European markets lost a tiny bit of momentum at the end of the trading day: the FTSE 100 provisionally closed up by 0.9%.

The Euro Stoxx 600 gained 1.1%.

4.28pm BST

Retailers and the hospitality industry are - perhaps understandably - pretty pleased with the government's move to stop landlords pushing shuttered businesses over the edge.

Rents are a huge burden for retailers that must be paid even where shops are closed. We have raised this problem with government and today's announcement protects firms who - during these extraordinary times - are unable to meet their rent obligations.

Many businesses in our sector have no revenue whatsoever coming in, so paying rents has been out of the question for some. This extra space will allow businesses to survive and to find a way to work with landlords. If social distancing measures are to be in place for some time, as we now believe they will, this measure may need to be extended to ensure that businesses can survive.

4.19pm BST

The government plans to ban landlords from using "aggressive" debt collection tactics such as winding up orders and statutory demands for high street shops who cannot pay their rent because of the coronavirus.

The business department also urged landlords to "give their tenants the breathing space needed" in the hopes that companies can survive the lockdowns.

The government calls on tenants to pay rent where they can afford it or what they can in recognition of the strains felt by commercial landlords too.

In this exceptional time for the UK, it is vital that we ensure businesses are kept afloat so that they can continue to provide the jobs our economy needs beyond the coronavirus pandemic.

I know that like all businesses they are under pressure, but I would urge them to show forbearance to their tenants. I am also taking steps to ensure the minority of landlords using aggressive tactics to collect their rents can no longer do so while the Covid-19 emergency continues.

4.03pm BST

Some more warnings from top officials on the depth of the economic crisis hitting Europe: this time it's Christine Lagarde.

European Central Bank Governor Christine Lagarde told EU leaders on Thursday that the coronavirus pandemic could cut up to 15% of their economic output, a diplomatic source said.

Asked about Lagarde comments on Thursday afternoon to a videconference of the 27 national EU leaders discussing economic recovery from the pandemic, the source said she presented "a bleak outlook: a downturn in the range of 5-15%."

3.50pm BST

With 40 minutes left of European trading, stock markets are on the front foot.

The FTSE 100 has gained 1.2%, led by big jumps for three housebuilders as they prepare to get back to work, while the mid-cap FTSE 250 is up by 1.8%.

3.39pm BST

Time for a recap....

The Bank of England has warned that Britain faces its worst slump in at least a century, on a day dominated by more grim economic data.

Based on the early indicators, and based on the experience in other countries that were hit somewhat earlier than the UK, it seems that we are experiencing an economic contraction that is faster and deeper than anything we have seen in the past century, or possibly several centuries.

UK economy fell off a cliff in April, according to this month's Composite PMI, which exceeds "anything seen in the PMI survey's 22-year history," says Chris Williamson, chief business economist at IHS Markit: https://t.co/4HjOhneJWO pic.twitter.com/vgkAMlJSyk

3.16pm BST

Bernard Looney, the boss of BP, has warned that the oil company faces a "brutal business environment" ahead of its first quarter financial results next week.

Looney will deliver his first financial update as BP's new chief executive on Tuesday, amid the deepest oil price crisis on record and just one week after oil prices turned negative in the US oil markets for the first time in history.

"We saw it in the negative oil prices this week. That's not just unprecedented - it is staggering."

"The oil sector is somewhat different in this regard but the sentiment backdrop is one where there is a degree of 'moral positive' to lower dividends".

3.13pm BST

Yet more bad news! Sales of newly built US family homes slumped by 15% in March, as the coronavirus pandemic hit the economy.

The Commerce Department reported that sales of brand new residential properties slowed to annual pace of 627,000 in March, down from 741,000/year in February.

2.52pm BST

Newsflash: America's economy is sinking at the fastest rate in at least a decade, but not as badly as in the UK and the Eurozone.

Data firm IHS Markit says its flash US Composite Output Index has slumped to 27.4 this month, down from 40.9 in March.

The decline in output largely stemmed from a slump in both domestic and foreign client demand. Temporary company closures, travel restrictions and other emergency public health measures across the globe weighed on total new orders.

Services companies registered the steepest rate of decline in the survey's history, while manufacturers recorded the sharpest fall in sales since the depths of the financial crisis in early-2009.

2.35pm BST

Wall Street has shrugged off today's jump in US unemployment.

The S&P 500 index has risen by 18 points, or 0.7%, to 2817 - despite another 4.4m Americans filing jobless claims last week.

2.21pm BST

Jaguar Land Rover, the UK's biggest carmaker, plans to reopen some factories on 18 May, as the automotive industry moves to restart production with new measures to stop the spread of Covid-19.

The company's Solihull plant, which employs 9,000 workers making the Range Rover and its Sport and Velar varieties, will be among the first to reopen, alongside its Slovakia plant making the Land Rover Discovery and the Austrian factory making the I-Pace and E-Pace SUVs.

"The health and wellbeing of our employees is our first priority. We are developing robust protocol and guidelines to support a safe return to work. We will adopt strict social distancing measures across our business and are currently evaluating a number of different measures to ensure we protect and reassure our workforce when they begin to return to work."

2.14pm BST

Another reminder of the astonishing jump in US joblessness claims:

We won't know for sure until the April jobs report but based on initial jobless claims, employment has dropped to the lowest level since the late-90s (when the labour force was smaller). It took 10 years to increase employment by 22 million and only 5 weeks to destroy it! pic.twitter.com/etRYZoUiUA

Initial claims for #unemployment:

3/20: 3.3mn
3/27: 6.9mn
4/3: 6.6mn
4/10: 5.2mn
4/18: 4.4mn

Cumulative 26.5mn

> All but 7 states saw fewer claims
> FL claims*3 >> backlogs
> Bleeding is less severe, but we still 4.4mn new claims in a week
> Worst of GFC was just <700k/week pic.twitter.com/kJUZfrsePp

2.11pm BST

Back in the UK, more than 660,000 jobs will be put at risk due to the collapse in air travel, the industry has claimed.

That includes direct employment and jobs indirectly supported by aviation, calculated by the International Air Transport Association.

"We know this is controversial...We don't want to deny passengers their rights. We ask that the time frame be extended to a month rather than seven days, that would give them the breathing space they need.

"Refunds will mean multiple bankruptcies which will make refunds even more difficult Flexibility will help airlines restart and serve passengers well - by flying them or refunding them."

2.06pm BST

More grim detail of the US job losses:

With today's 4.4 million initial claims print, there have been 25 million more claims since March 21 than we would have expected, about 17% of February US employment.

In states like Michigan, Kentucky, and Rhode Island, claims have been **one-third** of employment. pic.twitter.com/eEfVOT4PTh

2.01pm BST

Here's some snap reaction to the news that another 4.4 million Americans signed on for jobless benefit last week:

"While this week's 4.4 million jobless claims are staggering, there are signs that the pace of layoffs has reached its peak, and markets have already priced in a significant rise in unemployment in the first half of the year. The key questions at this point are when can the economy reopen, and what happens when it does?

"While the shape of any potential recovery is a major talking point, the shape of the virus curve is of paramount importance. A flattening in the number of new cases and deaths is key to determining when the economy can reopen. Longer term, developing an effective vaccine and/or treatment is essential. Until then, it is difficult to know when we will return to business as usual."

Neil Birrell, Chief Investment Officer at Premier Miton Investors, said:

Hardest hit states for #unemployment claims:

California 534K
Florida 505K
Texas 280K
Georgia 244K
New York 204K
Pennsylvania 198K

For perspective, the last 50 years of continuing jobless claims. Brutally unreal. pic.twitter.com/pW1UY1OwsP

1.46pm BST

The US unemployment crisis is threatening to overwhelm America's states, and is hurting millions of people badly, my colleagues Dominic Rushe and Amanda Holpuch in New York report:

An additional 4.4 million Americans filed for unemployment last week adding to a total of over 26 million since the coronavirus pandemic shutdown swathes of the US and brought its economy to a standstill.

The pace of layoffs appears to have slowed slightly but a backlog of claims mean millions more are likely to file in the coming weeks. States across the country are encountering problems with the sheer number of people applying for unemployment benefits.

1.40pm BST

The explosion in US unemployment claims in the last five weeks is quite extraordinary:

Vier en een kwart miljoen ww-aanvragen erbij in de VS. #joblessclaims. 24 miljoen in vijf weken tijd. Auw. pic.twitter.com/hfj2MzC9nd

1.34pm BST

Newsflash: Another 4.4 million American have filed new claims for unemployment benefit last week, as the US economy continues to suffer from the lockdown.

That takes the total number of 'initial claims' filed in the last five weeks to more than 26 million.

BREAKING: 4,427,000 Americans filed new claims for unemployment last week. That means at least 26 million Americans have lost their job in the last 5 weeks.

4.43 million people filed for jobless claims last week. That's fewer than estimated... but still can't say that is good news

1.16pm BST

A survey by market intelligence group Streetbees has shown that three-quarters of UK workers have been affected by Covid-19 in some way.

A poll of 1,843 people in the UK over the last month found that:

1.01pm BST

In the City, shares in UK housebuilders are leading the stock market risers today - after Taylor Wimpey and Vistry said they'd resume work soon.

Taylor Wimpey's shares are up 11%, leading the FTSE 100, followed by Barratt (+9%) and Persimmon (+8.7%).

12.22pm BST

The CBI has added to the gloom, by reporting that optimism among UK manufacturers is falling at a record pace.

The CBI says:

Business sentiment plunged at a survey-record pace in the three months to April (-87%), following a post-election bounce in January (+23%). Export sentiment also dropped at a survey-record pace in the quarter to April (-84% from -8% in January).

Some pretty dire data on the #manufacturing sector. The survey goes back to 1958, so record lows are not to be taken lightly! https://t.co/NjbaIxOc44

Manufacturers are taking a sharp hit because of the economic shutdown, with a huge fall in output and investment plans put on ice - survey by @CBItweets

12.08pm BST

P&O Cruises and Cunard, the two UK cruise lines in the Carnival group, have announced extensions to the "pauses" in their operations, until July 31 this year.

11.51am BST

Here's our news story on this morning's dire survey of UK purchasing managers:

11.44am BST

Two of Britain's big house builders, Taylor Wimpey and Vistry Group (formerly known as Bovis) have announced they will resume building work soon, having suspended operations under the lockdown.

My colleague Julia Kollewe explains:

Vistry said it would restart building houses on Monday. Since the covid-19 lockdown began four weeks ago, the company has taken 132 reservations net of cancellations, exchanged on 170 homes and legally completed 193 private sales.

Taylor Wimpey is to go back to its housing sites on 4 May, with subcontractors returning from 11 May. During the shutdown the firm added more than 200 homes to its 2.6bn order book.

11.33am BST

Bank of England policymaker Jan Vlieghe also defended the stimulus measures announced by the Bank of England since the Covid-19 outbreak began.

If we were the central bank of the Weimar Republic or Zimbabwe, the mechanical transactions on our balance sheet would be similar to what is actually happening in the UK right now. That is not where you would find the smoking gun.

The difference would be that government would be telling the central bank what to do, implicitly or explicitly, in order to achieve fiscal objectives while subordinating any inflation objectives, a situation also known as fiscal dominance.

11.02am BST

One of the Bank of England's top policymakers has warned that the UK could be suffering its worst economic shock in several hundred years.

Jan Vlieghe, a member of the BoE's interest-rate setting committee, made this warning in a speech just released:

Social distancing, in part voluntary and in part imposed, means that a wide range of consumption activities are sharply reduced or simply not taking place. Shopping in physical stores, recreational activities, personal services, and a long list of other types of spending have been sharply reduced.

As a result, the businesses that normally provide these goods and services have sharply reduced activity, or shut down entirely. Absent any policy response, most of the employees of these businesses would lose their jobs, and face a dramatic reduction in income. In contrast, those working in sectors whose output is still in demand, for example food retail and online businesses, face no reduction in income at all or even experience increased income.

10.23am BST

Andy Bruce of Reuters has a good take on this morning's alarmingly bad UK economic data, for those just tuning in:

Coronavirus hit Britain's economy in April with more force than even the most pessimistic forecasters had feared as businesses reported an historic collapse in demand during a nationwide lockdown, a survey showed on Thursday.

The IHS Markit/CIPS Flash UK Composite Purchasing Managers' Index (PMI) fell to a new record low of 12.9 from 36.0 in March - not even close to the weakest forecast in a Reuters poll of economists that had pointed to a reading of 31.4.

Coronavirus brings UK economy to its knees in April: PMI https://t.co/B401p6KpFS

10.06am BST

Everyone's agreed - the UK PMI report is just awful.

Even though we know the economy is in deep-freeze right now, the extent of the decline is still shocking.

"Though this significant and further deterioration from last month's results came as no great surprise, it is no less devastating. Manufacturing output sometimes shrank into almost nothing as the pandemic's grip took hold and factory closedowns at home and abroad made regular production schedules impossible. Supplier delivery times lengthened to an unprecedented extent. Some manufacturers commented on switching plant capacity to assist healthcare supply chains.

Meanwhile, service providers ramped up their online operations to survive, but others just hit a dead stop, shedding jobs and facing extreme cash flow difficulties.

The toll on services activity was particularly heavy reflecting the effective shutdown of several sectors.

We expect the economy to contract around 13% quarter-on-quarter in the second quarter on the assumption that there is some lifting of restrictions on activity during the quarter. We see GDP contracting 6.8% over 2020.

The collapse in the UK services, manufacturing and composite PMIs - key measures of activity in the economy - are unlike anything you've ever seen before. Well, unless you've just seen the ones for France and Germany. Not just worse than the financial crisis. Leagues worse. pic.twitter.com/bfJZqgF7U0

UK, French and Eurozone PMI data (basically an index of economic activity in manufacturing and service). These figures are woefully bad; unprecedented and worse than expected. Depression level stuff. pic.twitter.com/yw0dypC3Sy

9.54am BST

April is a particularly cruel month for Britain's textile and car-making industries, Markit says:

In manufacturing, the sharpest drop in output was registered in the textiles & clothing sector, largely reflecting collapsed demand from the retail sector, though the transport sector, including car production, also reported an especially steep decline

Customer-facing service providers often reported a complete shutdown of their business operations in April amid the public health emergency, while a wide range of survey respondents commented on weaker demand following temporary closures among their client

9.49am BST

April's grim PMI report suggests the UK could shrink by 7% this quarter -- but that could actually be an under-estimate!

Chris Williamson, Chief Business Economist at IHS Markit, explains:

Business closures and social distancing measures have caused business activity to collapse at a rate vastly exceeding that seen even during the global financial crisis, confirming fears that GDP will slump to a degree previously thought unimaginable in the second quarter due to measures taken to contain the spread of the virus.

"Simple historical comparisons of the PMI with GDP indicate that the April survey reading is consistent with GDP falling at a quarterly rate of approximately 7%. The actual decline in GDP could be even greater, in part because the PMI excludes the vast majority of the selfemployed and the retail sector, which have been especially hard-hit by the COVID-19 containment measures.

9.44am BST

The message from today's survey of UK businesses is clear -- output and employment have absolutely tumbled this month, much faster than during the financial crisis:

9.42am BST

Four fifths of the UK service companies surveyed by Markit reported a drop in activity this month, as did 75% of manufacturers.

This was "overwhelming attributed to the COVID-19 pandemic."

9.36am BST

Newsflash: Britain's economy is shrinking at an unprecedented rate this month, matching the slump in the eurozone.

Data firm Markit's UK Composite PMI, which tracks activity across the economy, has slumped to just 12.9 for April. That's down from 36 in March, and much worse than the the most pessimistic forecasts.

9.15am BST

Chris Williamson, chief business economist at IHS Markit, predicts that the eurozone economy could shrink by 7.5% this quarter - judging by today's dire survey of purchasing managers.

"April saw unprecedented damage to the eurozone economy amid virus lockdown measures coupled with slumping global demand and shortages of both staff and inputs.

The extent to which the PMI survey has shown business to have collapsed across the eurozone greatly exceeds anything ever seen before in over 20 years of data collection. The ferocity of the slump has also surpassed that thought imaginable by most economists, the headline index falling far below consensus estimates.

9.11am BST

Newsflash: The eurozone economy is suffering the steepest falls in business activity and employment ever recorded this month, as it sinks into recession.

The eurozone-wide composite PMI, just released, has hit an all-time low of 13.5 in April, down from a prior record low of 29.7 in March.

The eurozone economy suffered the steepest falls in business activity and employment ever recorded during April.

8.59am BST

Europe isn't alone, of course. Earlier today, Japan's PMI survey dropped to alarmingly low levels:

Wow! #Japan's Services #PMI collapsed to just 22.8 in April. pic.twitter.com/VgLbPEV6D7

"A devastating services report, but we see light at the end of the tunnel in manufacturing" @freyabeamish @mc_economist on #Japan Flash PMIs, April #PantheonMacro

We have gone from PMIs in 20s, teens and now shoe sizes https://t.co/73Hqfk8pQR

8.55am BST

The unprecedented slump in French and German growth this month has knocked the euro.

The single currency has dropped below $1.08 for the first time in over two weeks, down 0.3% today.

$EUR not liking April PMI readings out of Germany & France. Sign that markets beginning to respond to data. Divergences to appear going forward based on speed at which economies bottom & turn the corner. For now risk on the backfoot as data shows size of contraction to be brutal pic.twitter.com/kCPCtABAj1

8.40am BST

NEWSFLASH: The French and German economies are contracting at an unprecedented rate this month under the lockdown.

Data firm Markit's latest surveys of purchasing managers, just released, shows that business activity in both countries slumped dramatically.

French private sector activity continued to plunge in April, with ongoing business closures stifling both supply and demand.

2. France preliminary April PMI at 11.2. pic.twitter.com/oEuujKq7EJ

The decline in business activity across Germany deepened in April, with both services and manufacturing seeing record decreases in output as a result of the COVID-19 pandemic and subsequent lockdown....

Businesses reported a collapse in demand from clients both at home and abroad in April. The rate of decline in overall inflows of new work far exceeded the previous record seen in March, with new business received from abroad falling at a similarly sharp pace. In both cases, the decline was led by the service sector

More gloomy news from Eurozone: #Germany's Apr Flash Comp PMI falls to 17.1 from 35 in March, lowest reading since series began. German Apr Services PMI PMI crashes to 15.9 vs 28 expected. pic.twitter.com/YfvyYD2d09

8.28am BST

To put today's plans into context, the UK only grew its national debt by 48.7bn in the last financial year:

Borrowing in the full 2019 to 2020 financial year was 48.7 billion, 9.3 billion more than the previous year and 1.3 billion more than the Office for Budget Responsibility forecast https://t.co/m3MobvO6PZ pic.twitter.com/B8ICxYdB2T

8.25am BST

Today's borrowing plans have brought home just how eye-wateringly expensive the Covid-19 lockdown will be.

Duncan Weldon of The Economist points out that the UK will now borrow more in four months than it previously planned for the whole financial year.

New UK gilt issuance timetable.
Yes, 225bn in four months is *a lot*.
Context: the original financing plan for all of financial year 2020/21 (as published at the budget a million years ago/last month) was 162bn. pic.twitter.com/CKIEIi8DFK

A lot of debt for years and years to come...@hmtreasury says it wants to raise 225bn in April to July by selling bonds (that's Govt debt).

The pre-Coronavirus plan was to raise around 160bn for the whole year. pic.twitter.com/IWgLYdMzgF

Wow. The UK will raise 180 billion in government bond sales in just THREE MONTHS between May and July

Breathtaking numbers

HM Treasury also confirms all financing requirements will be through normal channels - ie the Debt Management Office selling Gilts.

Expected that much more borrowing will be done in the first 4 months of fiscal year (starts April) and not expected to continue for rest of year

So totals:

April: 45bn
May-July: 180bn
Total Apr-July: 225bn

8.05am BST

The UK has announced plans for a massive surge in borrowing over the next few months, to cover the cost of the Covid-19 pandemic.

Britain't Debt Management Office says it plans to issue 180bn of bonds between May and July.

This remit revision takes into account implications for the government's financing requirement of all measures announced by government to date to support the economy through the period of disruption caused by COVID-19.

Wow. If you want to know how much Covid support is costing look at HMG's revised gilt issuance today. 225bn in total, in first four months of financial year. 45bn for April was already a record, now another 180bn May-July

"This higher volume of issuance is not expected to be required across the remainder of the financial year."

7.45am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

A fresh blizzard of data today will show us just how badly the world economy is suffering from the Covid-19 downturn.

Sentiment clearly remain fragile and that could be magnified with the release of the PMI readings for the UK and Eurozone.

The service sector accounts for 80% of UK economic activity. In March the UK service sector contracted at the fastest pace on record, dropping to 34.5 on the index. And that was only the beginning of lock down! This months' reading is expected to dive deeper into contraction territory to 29.

Over the last 4 weeks, a cumulative total of more than 22m claims have been made, which is around the number of jobs that were created in the decade of expansion. So it's no exaggeration to call the scale of the declines unprecedented.

Two highlights today

- & Flash PMIs (Apr):Services & composite set to print fresh record lows, watch supplier deliveries impact on manufacturing

- Initial Jobless Claims (Apr 18): Pace of claims set to slow slightly, but still elevated, exp. 4.15mln

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