UK government borrowing hits record high in April and retail sales slump - as it happened

Graeme Wearden

from on 2020-05-22 15:49 (#53S9A)

UK public borrowing soars to 62bn in a single month and retail sales slump by 18%

4.49pm BST

And finally, after an edgy day's trading, Europe's markets have closed pretty much where they started.

Anxiety over US-China tensions weighed on stocks, and kept the oil price down. But some investors are also clinging to hopes that lockdown measures will continue to be eased without a dangerous spike in Covid-19 infections.

The FTSE 100 is underperforming against its Continental counterparts as US-China tensions rise. Beijing are keen to tighten their grip on Hong Kong which is why the Chinese government are set to impose a national security law on the district. Last year there was protests and civil unrest in the territory as the Beijing administration were trying to put Hong Kong further under its influence.

The latest development is likely to trigger protests. President Trump effectively sided with Hong Kong last year so he is likely to do the same if the situation escalates, and that might renew US-China trade tensions, which is why equity traders are a little nervous.

4.20pm BST

With Britain's borrowing hitting record levels, the government can at least rely on the Bank of England to mop up hundreds of billions of pounds of bonds.

That moves, though the Bank's QE scheme, is helping to keep borrowing costs at record lows - and limit the need for fresh austerity.

A decade ago, Britain would have been described as living beyond its means. This time around, warnings about maxed-out credit cards will only come from yesterday's men who favoured austerity. It appears there is now broader acceptance of an argument defeated by the Conservatives a decade ago - that the budget deficit is more complex than a family's bank balance.

The household metaphor holding sway today is about public borrowing and central heating: it's supposed to come on when the weather is cold. And right now, despite the late spring sunshine, the economic outlook for Britain is wintery bleak.

4.00pm BST

Small brewers are worried they might lose out once Marston's teams up with Carlsberg to form a new brewing and distribution operation.

Although Marston's will keep running its pubs independently, could there be pressure to take more beer from the CMBC joint venture, and less from independent beer-makers?

This merger is the latest in a series of consolidating measures within the UK beer market. It has the potential to take the Marston's brand global and brings Carlsberg back into the distribution and porterage business only after a few short years of leaving it.

This merger yet again has the potential to impact negatively on small independent brewers by further reducing the access to market they receive."

3.03pm BST

The City is cheering Marston's tie-up with Carlsberg.

Shares in the UK pub and brewer jumped as much as 87% today to 60p, for the first time since Friday 13th March (at the height of the pandemic sell-off).

2.41pm BST

Over in New York, stocks have dipped at the start of trading as investors worry about rising China tensions, as well as the Covid-19 pandemic.

The Dow has dropped by 120 points, or 0.5%. to 24,353.

2.24pm BST

Oil markets retreated from 10 week highs by tumbling 5% on Friday morning as renewed trade tensions between the US and China fanned fears for the global economy.

The price of Brent crude fell from over $36 a barrel on Thursday to lows of $33.70 late Friday morning, before paring its losses to $35.40 a barrel by early afternoon.

A second wave is not such a remote possibility and a new round of lockdowns could send prices back to much lower levels very quickly, and the market knows it."

2.23pm BST

More reaction to the Marston's-Carlsberg brewing merger, from beer blogger Steve Williams:

Effectively Marston's selling their brewing business to Carlsberg in return for 273m cash plus 40% of the Joint MAR/CAR UK brewing business - which Marston's will divest in due time for some more cash leaving a well invested, professionally managed pub estate - ring any bells ?

Crazy news on that Carlsberg and Marston's merger. Feel like both business probably needed something innovative like that though, but what an empire it now is!

Marston's have a very good track record on keeping the breweries they buy open - whether Carlsberg will take the same view in a declining ale market remains to be seen.

2.00pm BST

Newsflash: UK pub chain Marston's is merging its brewing operations with Carlsberg's UK arm in a deal worth around 780m.

Basically, Marston's will run the pubs, Carlsberg will brew the beer.

Marston's shares up 25% after putting its brewing business into a JV with Carlsberg which will own 60%

Marston's gets 40% stake and up to 273m cash

Predict the headlines:

Death of British beer
End of an era for ale drinkers
Marston's pulls a financial rabbit out of the hat

1.21pm BST

Britain's fiscal watchdog, the Office for Budget Responsibility, says it will take many months before we know the full cost of the pandemic.

But, today's public finances give an initial taste" of the fiscal hit - with borrowing jumping at a record amount last month, at 62bn.

1.10pm BST

The good news for the UK is that it won't struggle to finance its huge deficit.

The financial markets haven't reacted badly to April's record surge in borrowing, or the possibility that Britain needs to borrow, say, 300bn this year.

Gilt market reaction today to record monthly borrowing. pic.twitter.com/2ocs1j0l5S

12.49pm BST

Wetherspoons has unveiled its plan to reopen its pubs while keeping customers and staff safe from Covid-19.

It include protective screens between tables, and bar staff wearing goggles, in an attempt to comply with physical distancing rules and limit the risk of infection.

The 11m plan will include two staff members per pub, or more in bigger venues, specifically tasked with disinfecting surfaces such as door handles, handrails and card payment machines.

Dedicated staff will also monitor the pub to ensure physical distancing is being maintained, while customers will be encouraged to use one of 10 hand sanitiser points in each pub.

12.32pm BST

Astonishingly, the UK government actually paid out more in VAT repayments than it took in through VAT receipts last month.

VAT, charged at up to 20% on a range of goods and services, is usually a reliable source of revenue. In April 2019 it brought in 13bn. But last month, VAT cash receipts were minus 0.9 billion.

This sharp decline in revenue reflects both the economic slowdown and the VAT deferral scheme. Therefore - at least in large part - this represents a policy success: large parts of the economy have, as was intended, shut down to stop the spread of COVID-19, reducing VAT owed.

In addition, firms have been able to defer payment on their VAT liabilities until the end of the financial year. To the extent that businesses had short-term liquidity problems, this measure will help support them through the crisis and revenue will come in later in the year. However, some fraction of businesses is likely to face not just a liquidity but a solvency issue and not survive, meaning that some VAT revenues will never be paid.

One aspect of today's dreadful fiscal numbers.

We normally receive 10-12bn in VAT revenues in April. For first time ever revenues were *negative* this April as refunds exceeded receipts https://t.co/Jd5PgWM4QP

12.06pm BST

11.45am BST

European stock markets are still in the red, amid concerns that China is tightening its control of Hong Kong. Here's the latest:

11.27am BST

Around 800 jobs have been saved through a rescue deal for the Carluccio's restaurant chain.

But sadly, 1,000 jobs are still being lost.

The billionaire Ranjit Singh Boparan has bought the Carluccio's brand and 31 restaurants in a deal that rescues more than 800 jobs.

About 40 further outlets of the ailing chain, which called in administrators in March, will be permanently shut, with the loss of 1,000 jobs. All the Carluccio's outlets are currently closed and its staff are on furlough.

11.21am BST

Billionaire investor-turned-philanthropist George Soros has warned that Covid-19 threatens the survival of the EU.

Exceptional circumstances require exceptional measures. Perpetual bonds or consols are such a measure. They should not even be considered in normal times. But if the EU is unable to consider it now, it may not be able to survive the challenges it currently confronts. This is not a theoretical possibility; it may be the tragic reality.

The coronavirus and climate change are threatening not only people's lives but the survival of our civilization.

The taxes only have to be authorized; they don't need to be implemented. Authorization should take a few weeks, not a few years. Once they are authorized the EU could go ahead and issue perpetual bonds or consols.

10.30am BST

Luxury fashion chain Burberry has also highlighted the slump in retail, reporting that sales fell by over a quarter as the Covid-19 pandemic began.

Reported operating profit declined 57%, predominantly due to the impact of adjusting items relating to the COVID-19 pandemic.

Retooled our factory in Yorkshire to make gowns and sourced surgical masks through our global supply chain.

To date donated >150,000 pieces of PPE to NHS and care charities, funded research into a vaccine developed by the University of Oxford and donated to charities tackling food poverty in the UK.

9.47am BST

British households probably won't return to their old spending patterns until the middle of this decade, according to the Centre for Economics and Business Research.

CEBR economist Sam Miley has warned that the damage caused by the pandemic will linger on, long after lockdown measures have eased.

Any potential lifting of restrictions going into June is likely to facilitate a slight return to retail activity, though the impact of lockdown throughout April and May means the picture for Q2 as a whole is entirely negative. Our forecasts estimate household consumption to fall by 19.5% over the course of the current quarter, before picking up from Q3 onwards.

Consumer activity is expected to remain suppressed for much longer than this, however, with lingering fears over the virus, the continued need for social distancing, and wider economic uncertainty all serving to restrict spending. In a stark illustration of the economic impacts of coronavirus, we do not expect household consumption to reach pre-crisis levels until the mid-2020s.

9.20am BST

Here's our economics editor Larry Elliott on the jump in UK borrowing:

The government was forced to borrow a record 62bn to balance its books in April as the public finances felt the strain from a shutdown of the economy that saw high street spending plummet by an unprecedented 18%.

Figures from the office for national statistics highlighted the dramatic impact of the Covid-19 restrictions introduced in late March on activity - with public borrowing up by more than 50bn on the same month a year earlier and spending in clothes stores down by 50%.

9.11am BST

Britain's retailers are suffering from one of the most profound shifts" in consumer behaviour in a century, says Lynda Petherick, managing director at Accenture.

April was always going to be the month when the full force of government lockdown measures would hit retailers. Clothing has continued to suffer, and though there are still some bright spots in grocery, panic-buying" and online household goods orders subsided slightly as consumers continued to restrict their shopping trips.

Yes - these are hard times for the sector, however there are lessons to be learned if retailers are to come out the other side of the pandemic ready to respond. Online sales continue to reach new heights, suggesting that consumers have been quick to shift their buying habits - a trend which is only likely to continue. Retailers will need to act quickly and deliberately to improve their capabilities if they are to drive growth and profitability in an increasingly digital future."

However bad April's figures are, we believe that retail has reached a turning point in the Covid-19 crisis. In the short term, May has already seen a loosening of lockdown restrictions across all the home nations. Indeed, enterprising operators have begun to reopen cautiously, from garden centres to some furniture stores coming back for the bank holiday weekend.

UK retail sales volumes plunged -18.1%m/m in April, following a -5.2%m/m fall in March. Internet sales up to to a record 30.7% of all sales. Non-store retailing (mail order) sales volumes up 18%m/m. All other retail sectors saw sales volumes sharply down on the previous month. pic.twitter.com/7eBAKwe0f0

8.47am BST

As rumoured, the UK government has extended its mortgage payment holiday scheme by three months.

It's also extended the ban on home repossessions until the end of October, in an attempt to prevent the pandemic leading to rising homelessness.

More than 1.8 million homeowners have taken a three-month mortgage holiday since the scheme was announced in March to help borrowers in financial difficulty because of the coronavirus crisis, according to Treasury figures. It was due to expire at the end of June.

We're doing everything we can to help people with their finances at this difficult time and that includes making sure people get the support they need with their mortgages," said John Glen, the economic secretary to the Treasury. That's why we're working with the banks and lenders to extend payment holidays if people need them."

8.36am BST

Over in the City, shares are dropping as investors worry about the economic impact of Covid-19.

The FTSE 100 index of leading UK-listed shares dropped by 110 points, or 1.8%, in early trading to 5903. That wipes out most of this week's gains. Nearly every share is down, led by financial services firms like Prudential (-9%), HSBC (-5.8%) and Standard Chartered (-4%).

This will likely draw a large amount of opposition given the pro-democracy protests in the country over the past year. This could be another wedge between China and the US, given how many US politicians on both sides of the aisle supported HK's efforts last year.

8.20am BST

You can read today's data yourself, here:

8.16am BST

Online spending surged last month, as the lockdown encouraged more Britons to order groceries, wine, household goods and other items online.

The ONS reports that 30.7% of retail spending took place online in April, up from 19.1% a year earlier.

Amidst understandable v weak UK retail sales (-18.4% YoY) fascinating trends in online. Online food sales +83% YoY, household goods +104% YoY, but clothing & footwear online sales 20%. Not all online vendors winning- points to High St & Online being complementary in this sector pic.twitter.com/awluYAxdOt

8.09am BST

Over 14% of UK shops reported no turnover at all in April, due to the Covid-19 shutdown.

That includes 27% of clothing and footwear outlets (where takings halved last month!), and almost 40% of department stores.

7.59am BST

Paul Dales of Capital Economics predicts Britain's deficit could hit 17% of GDP this year. That's an immense figure -- exceeding the last financial crisis, when the deficit hit 10% of annual output.

Dales explains:

With little prospect of a swift return this year towards pre-crisis levels of economic activity, we expect borrowing to total 340bn (17.5% of GDP) over 2020/21, which would be over 40bn more than the OBR's forecast.

Overall, the small easing of the lockdown on 13^th May probably means that retail sales started to edge higher in May and that the government might not have had to borrow quite as much as in April. But it's very clear that the retail activity will remain worrying weak for some time yet and that the government will have to borrow a few hundred billion pounds this year.

The UK's budget deficit is at the highest level since records began in 1993. This is a good thing; if your house is on fire, you don't ask the Fire Brigade to only use a certain amount of water.

The water will need to keep flowing and the deficit will continue to grow because the alternative - a deeply scarred economy - is far worse."

Central government receipts fell 26.5% year-on-year in April, as they were impacted by a combination of sharply contracting economic activity, markedly rising unemployment and weaker earnings, and companies being allowed to delay tax payments.

Income and capital gains tax receipts were down 36.0% year-on-year in April, as jobs were lost and pay hit. There was also a fall of 14.1% in corporation tax receipts while VAT receipts were down 43.6% year-on-year.

7.48am BST

Here's some snap reaction to the surge in UK government borrowing to 62bn last month.

The BBC's Dharshini David points out that Britain just borrowed more in April than it had expected to borrow in the whole financial year, before the pandemic struck:

Gov deficit tops record 62bn in April - bigger than shortfall for year as a whole had been forecast in March Budget due to emergency support for virus impact. Gap plugged largely by borrowing but scale of shortfall underlines tax/spending changes inevitable ahead.

Government borrowing in April estimated at 62.1 billion, 51.1 billion more than in April 2019; the highest borrowing in any month on record (records began in January 1993) @ONS Extraneous fact - Mr Blobby and Meat Loaf were topping the charts in 1993 #changedtimes

This is just the tip of the iceberg - even if we do well in containing virus & reopening the economy borrowing this year will be the highest since the war. That borrowing is how we 1) protect family incomes 2) prevent a deeper recession 3) reduce permanent economic damage

Striking that borrowing of 62bn in April alone was higher than @OBR_UK pre-crisis forecast of 55bn for 2020/21 as a whole. Quite likely now that borrowing this year will be over 300bn and that @bankofengland will facilitate this with an extra 100bn of QE at its June meeting https://t.co/2K7EMQdbW1

7.15am BST

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

We start with some breaking news -- UK government borrowing hit its highest level on record last month amid the Covid-19 pandemic, as retail sales across the country plunged at a record pace.

Government borrowing hit an all time record high of 62bn in April - the same as the entire of last year https://t.co/3edsP56S47

European Opening Calls:#FTSE 5946 -1.14%#DAX 10912 -1.39%#CAC 4389 -1.28%#AEX 517 -1.14%#MIB 16904 -1.07%#IBEX 6603 -1.25%#OMX 1542 -0.90%#STOXX 2866 -1.34%#IGOpeningCall

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