UK national debt hits £2tn for first time; UK and US PMIs rise - as it happened

Graeme Wearden

from on 2020-08-21 14:31 (#575PD)

Rolling coverage of the latest economic and financial news, as the Covid-19 pandemic drives UK government debt to record highs

Latest: UK PMI shows best growth since 2013
But it's not a v-shaped recovery yet
Breaking: UK national debt now 2,004bn
UK has borrowed 150bn since April
Rishi Sunak: public finances are under strain

3.31pm BST

Finally... consumer confidence across the eurozone has risen very slightly, but is still rather weak.

The European Commission's gauge of consumer morals rose by 0.3 points in August to -14.7, suggesting a lot of understandable anxiety about the economic prospects.

3.22pm BST

Neil Birrell, chief investment officer at Premier Miton, isn't delirious about the jump in America's PMI this month.

He points out that other data has been less encouraging, such as yesterday's jump in jobless claims.

The US PMIs showed a better outlook for the economy, but it's been a mixed week; good housing data, disappointing jobs data, which is probably unsurprising given the steep recovery we have seen. All eyes will be on the Fed's meeting at Jackson Hole next week to see what policy support will be forthcoming."

3.13pm BST

Oof! US home sales have surged by nearly a quarter, signalling that America's housing market is shaking of its Covid-19 blues.

Existing home sales (ie, excluding new builds) jumped by 24.7% in July compared with June, much stronger than expected.

Sales of existing homes soared 24.7% in July compared with June, according to the National Association of Realtors. These numbers represent closed sales, meaning contracts signed in May and June.

That is the strongest monthly gain in the history of the survey, going back to 1968, and the highest sales pace since December 2006.

*U.S. EXISTING HOME SALES SOAR 24.7% IN JULY; EST 14.7%

*U.S. EXISTING HOME SALES (JUL) ACTUAL: 5.86M VS 4.72M PREVIOUS; EST 5.38M pic.twitter.com/w9nzz5yg9e

NAR: Existing-Home Sales Increased to 5.86 million in July https://t.co/IS9w2Kbs0Z pic.twitter.com/3tJRyHuWWZ

2.56pm BST

Activity across America's private sector is growing at the fastest pace in over a year.

That's according to IHS Markit's survey of US purchasing managers, just released. It shows a strong upturn in business activity in August", at both service sector firms and factories.

Notably, it marked the first rise in service sector activity since the start of the year, while goods manufacturers recorded the fastest increase in production since January 2019.

Manufacturing firms registered a steeper expansion in new order inflows than in July, while service providers signalled a renewed increase in sales. Companies commonly stated that new business growth stemmed from increased marketing efforts and the resumption of client operations.

The reopening of economies worldwide also helped to boost new export orders, with foreign sales expanding at the sharpest pace since September 2014.

*U.S. IHS MARKIT AUGUST FLASH MANUFACTURING PMI AT 53.6 (VS 50.9 IN JULY)

*U.S. IHS MARKIT AUGUST FLASH SERVICES PMI AT 54.8 (VS 50.0 IN JULY)

*U.S. IHS MARKIT AUGUST FLASH COMPOSITE PMI AT 54.7 (VS 50.3 IN JULY) pic.twitter.com/uGIiwIvtaK

2.44pm BST

The US stock market has opened very cautiously, with the main indices basically flat in early trading.

Same price action playing out in stock futures as yesterday, and many days before that:
Disappointing economic news pushes stocks down...
Triggering the "buy-on-dip" conditioning backed by liquidity-based technicals.
In the process, the economic/market disconnect grows ever more. pic.twitter.com/zEJrHv8eRc

1.58pm BST

The mood in the markets has deteriorated as the weekend approaches.

The FTSE 100 index is now down almost 1% at 5956, a drop of 56 points, as the surge in August's PMIs fails to cheer the City.

1.52pm BST

Online electricals vendor AO.com is doing its bit to combat Britain's looming unemployment crisis.

AO, which yesterday reported a surge in orders during the pandemic, is planning to hire 650 staff to cope with the new demand. Some jobs are quite traditional - delivery drivers and gas engineers. Some, such as a TikTok specialist, are not.

12.58pm BST

Will Crossrail ever arrive?

Europe's largest railway infrastructure project - from Reading and Heathrow, across central London, to Abbey Wood and Shenfield - has been delayed again.

Crossrail, the mass-transit train line through London, has been further delayed until 2022 and gone another 450m over budget.

Transport for London said that the temporary pause in construction and ensuing slowdown because of Covid-19 distancing requirements had only partially contributed to the latest delays, which mean the Elizabeth line will open more than three years late and cost almost 4bn more than originally budgeted.

12.42pm BST

Here's our news story on this morning's surprisingly strong UK PMI survey:

11.51am BST

The CBI's Alpesh Paleja recommends caution about this morning's retail sales and PMI data:

A fair bit of V-shaped recovery-esque data out this morning. A few things to bear in mind:
Pent-up demand released as lockdown eased
Displaced spending from consumer services to goods (which may reverse in the months ahead) (1/2)

V. disparate picture both between and within sectors
Levels of demand still well below pre-pandemic levels...
...and job cuts gathering pace (both noted by IHS Markit)
Your regular reminder that retail sales only make up just under a third of household spending (2/2)

11.11am BST

Just in: the downturn in UK manufacturing may have bottomed out.

The CBI's latest survey of UK factories shows that output volumes in the three months to August continued to fall quickly, but the pace of decline eased somewhat from July's record decline.

UK CBI MANUFACTURING EXPORT ORDERS BALANCE -60 IN AUG VS JULY -64
UK CBI MANUFACTURING OUTPUT EXPECTATIONS BALANCE -10 IN AUG VS +15 IN JULY

11.06am BST

Analogy of the day:

It's actually worse than this.

Your mortgage provider is also offering to lend to you interest free in order to fix the burst pipe, because they know you will both be worse off if the house gets seriously damaged. https://t.co/b3zX1qmwUr

10.40am BST

The jump in UK company growth this month is partly due to the government's half-price meal voucher scheme.

Eat Out to Help Out has encouraged people back to restaurants and pubs, but that short-term boost could fade this autumn as firms keep cutting jobs.

Today's eurozone PMI release confirms that while activity is on the mend, the pace of the recovery is slowing. It's no coincidence that the recovery is losing pace as concerns over new infections have risen. The UK PMI shows recent government schemes such as the Eat Out to Help Out" scheme have boosted activity in the services sector. The fly in the ointment is employment, where the survey highlights the key risk over the coming months that the furlough scheme ending prematurely could to lead to a rise in unemployment.

The global economy is not yet back to full fitness and until a vaccine is ready, it may not be possible to return to life as it was at the start of the year. Investors will be hoping that governments, supported by central banks, continue to plug the holes left by the virus for as long as it takes."

10.32am BST

10.15am BST

In the City, the FTSE 100 index has fallen below 6,000 points for the first time in two weeks.

Mining company Fresnillo is the top faller (-2%), followed by publishing group Pearson (-1.5%) and bank Standard Chartered (-1.5%).

10.10am BST

Here's our news story on the surge in Britain's national debt over two trillion pounds:

10.06am BST

Tim Moore, economics director at IHS Markit, says August's PMI report show the UK economy picked up speed this month.

But...he also warns that firms are less upbeat about growth prospects, and are cutting staff levels sharply.

Survey respondents often noted that it could take more than a year to return output to pre-pandemic levels and there were widespread concerns that the honeymoon period for growth may begin to fade through the autumn months.

Worries about the state of the UK economy and the highly uncertain outlook for the pandemic led to a setback for business expectations in August, with confidence about growth prospects dipping for the first time since the slump in March.

9.58am BST

At first glance, the UK PMI survey for August may look like a V-shaped recovery. But it's not (at least not yet!).

9.46am BST

Some early reaction to the strong UK PMI report, from Rupert Harrison of BlackRock...

UK services PMI stands out as very strong when other European services PMIs are notably weakening. Pretty encouraging

Maybe we are a little behind on reopening so still playing catch up. But also probably benefitting from still contained virus data. Need to keep it that way https://t.co/X376OJE4Ry

A very very odd recession - we're moving out of the depth of the (first) output part of it, and into the depths of the unemployment part (which will itself then drive the second output hit) https://t.co/FtIwWfBpFY

Flash UK composite #PMI (a measure of changes in business activity) much stronger than expected in August - at 60.3.

We can debate exactly what this means in terms of levels or growth rates (and employment still weak), but overall it's clearly good news.#vshapedrecovery pic.twitter.com/bv1sfejn9N

9.38am BST

Breaking: UK companies have reported that growth accelerated in August, but they're still cutting jobs.

IHS Markit's latest healthcheck on British firms shows activity expanded at the fastest rate since 2013, with service sector firms seeing the sharpest rise.

*U.K. AUG. SERVICES PMI RISES TO 60.1; FORECAST 57

*U.K. AUG. MANUFACTURING PMI 55.3; FORECAST 54

Concerns about the speed and duration of the recovery resulted in sustained job cuts across the private sector during August. In contrast to the positive trends for output and new orders, latest data indicated the fastest pace of decline in employment numbers since May.

Lower payroll numbers were primarily attributed to Comment redundancy programmes in response to depleted volumes of work and the need to reduce overheads before the government's job retention scheme winds down.

UK services & manufacturing PMIs easily beat expectations - signals fastest growth in several years.

BUT... also shows rapid deterioration of labour market and companies are getting increasingly worried about that

9.22am BST

Although the UK national debt is now 2bn, larger than the entire economy, Britain does not face a debt crisis.

Currently, the UK can borrow cheaper than ever before. Ten-year government debt is currently trading at a yield, or interest rate, of just 0.22% per year.

The positive news for the Government is that despite debt reaching 2tn, low interest rates have reduced its cost and its growth is slowing as the exceptional support measures to deal with the pandemic are withdrawn and furloughed employees return to work.

The big question is how much permanent damage is being done to the economy, with accelerating job losses a concerning sign as we approach the autumn. How quickly debt continues to grow will also depend on any additional support that the Government might provide to sectors that are still struggling."

9.10am BST

Just in: The recovery in the eurozone economy is slowing, with service sector companies reporting slower growth.

Data firm Markit's latest survey of purchasing managers shows that the economy kept expanding in August after its worst recession ever. However, the pace of improvement weakened, with companies continuing to cut jobs and new business growth fading.

The latest IHS Markit Flash France PMI pointed to stalling growth momentum in the private sector during August. After July's sharp expansion in activity, the latest increase was modest. Read more: https://t.co/ptsGYxpPJZ pic.twitter.com/HfmNa3UgmD

8.27am BST

There is a tiny glimmer of good news in today's UK public finances report.

Borrowing in June 2020 was revised down by 6bn to 29.5bn, because tax receipts and National Insurance contributions were actually stronger than the ONS first estimated.

The government was certainly lacking in good news stories this week, but today's official borrowing figures show a small win for the Exchequer given June's borrowing figures were actually less than reported last month due to stronger than expected tax receipts. In addition, retails sales increased 3.6% on the month and are now 3% above pre-pandemic levels in February 2020, but still lag what is expected from a normal July.

But this does not remove the fact that the UK is officially in a recession, Gfk consumer confidence - a forward indicator of confidence - remains unchanged overnight and now public sector net debt has breached the 2 trillion mark for the first time.

8.19am BST

Ruth Gregory, senior UK economist at Capital Economics, says Britain's record-breaking national debt reflects the extraordinary support' provided since the pandemic struck:

The 26.7bn the government borrowed in July was the lowest monthly borrowing figure since March as fiscal support started to unwind. Nonetheless, it is another huge sum and pushes borrowing in the year to date to 150.5bn. That is close to the deficit for the whole of 2009/10 of 158.3bn, which was previously the largest cash deficit in history, reflecting the extraordinary fiscal support the government has put in place to see the economy through the crisis.

Overall, today's figures bode well for consumption in Q3, but now that the initial boost from re-opening has passed and fiscal support measures are being phased out, further increases in high street spending in August and beyond will be more minimal.

8.16am BST

We've also learned this morning that UK retail sales are now above their levels before the pandemic struck.

The ONS reports that retail sales volumes increased by 3.6% in July when compared with June, and are 3.0% above pre-pandemic levels in February 2020.

8.03am BST

Here's some snap reaction to the news that Britain's national debt has hit the 2tn mark for the first time:

"Borrowing still set to total about 17% of GDP this year," says @PantheonMacro. "Public borrowing remains on course this year to hit its highest share of GDP since the Second World War."

The Chancellor puts the country on notice for some combination of tax rises & spending cuts to come:

We must return our public finances to a sustainable footing over time, which will require taking difficult decisions"

Sounds almost like a certain George Osborne....

UK public debt has reached 2 trillion for the first time.

Amazingly, borrowing in the first four months of this financial year has been 150.5bn. That's not far off the 158.3bn borrowed during the whole of 2009-10, the previous record annual cash deficit

UK public debt now 2tn - bigger than current @Apple market cap [$2tn]

July public finance data show record borrowing and debt climbing above 2 trillion (100% of GDP) *as expected*

More interesting point is that actual borrowing continues to come in *below* the OBR's forecasts (which I think are too pessimistic)... pic.twitter.com/ys21kcNLND

7.59am BST

Charlie McCurdy, economist at the Resolution Foundation, says chancellor Rishi Sunak should resist tackling the UK's debt mountain until the recovery is secured.

The Government has now borrowed 150 billion since April as a result of the crisis, and efforts to fight it. The national debt has now hit 2 trillion, with more heavy borrowing due as the crisis continues.

The reopening is the economy is showing signs of having an impact on borrowing though, with the Government spending 6.9 billion in July paying the wages of furloughed workers, down from 8.2bn in June. This 15 per cent fall is smaller than our estimate, based on separate ONS data, that the number of fully furloughed workers fell by around a third over this period, reflecting the introduction of partial furloughing in July.

7.59am BST

Rishi Sunak, the UK chancellor, has described today's borrowing figures as a stark reminder" that the government must return the public finances to a sustainable footing over time.

He also warns that the Covid-19 crisis has put significant strain on the public finances, due to the hit to the UK economy.

Chancellor @RishiSunak says the pandemic has put the UK public finances under significant strain" and difficult decisions" will be needed in time pic.twitter.com/rMgnY0RBOB

7.53am BST

Tax receipts fell very sharply last month, forcing the government to borrow heavily to cover the shortfall.

The ONS estimates that central government receipts shrank by 16.7% compared with July 2019 to 56.6bn, including 40.4bn in taxes.

This month, tax revenue on a national accounts basis fell by 23.1% compared with July last year, with Value Added Tax (VAT), Corporation Tax and Pay As You Earn (PAYE) Income Tax receipts falling by 26.2%, 29.8% and 6.2% respectively.

7.46am BST

Over the last four months, the UK has nearly borrowed as much as in the 12 months after the financial crisis.

The deficit surged to nearly 160bn in the 2009-2010 financial year, due to the cost of bailing out the banks and handling a deep recession.

7.29am BST

This chart shows how Britain's debt has now hit the 2tn level, and is now larger than the country's annual economic output (GDP).

7.12am BST

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

Britain's national debt has hit two trillion pounds for the first time, as the cost of fighting the Covid-19 pandemic continues to mount.

The coronavirus (COVID-19) pandemic continues to have a significant impact on the UK public sector finances.

These effects arise from both the introduction of public health measures and from new government policies to support businesses and individuals

Public sector net debt excluding public sector banks was 2,004.0 billion at the end of July 2020, up 227.6 billion on July 2019.

This is the first time it has exceeded 2 trillion pounds https://t.co/wIcfpkX5uy pic.twitter.com/7SYm6aQ0aH

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