UK economy shrinks by 2%; Fed chair warns of 'prolonged' US recession - business live
UK GDP has suffered its biggest quarterly fall since 2008, as the coronavirus lockdown hits the economy
- Latest: Jerome Powell warns US economy faces severe hit
- Chancellor Sunak says UK can get through disruption
- Introduction: UK economy shrank 2.0% in January-March
- March was worst month for growth on record
- Coronavirus - latest updates
- See all our coronavirus coverage
4.59pm BST
And finally.... European stock markets have closed sharply lower amid anxiety over the economic damage of Covid-19, and what may be still to come.
All the main indices ended in the red, with the Europe-wide Stoxx 600 dropping 2% to its lowest close in seven sessions.
Related: Aston Martin makes 119m loss in first quarter of 2020
Related: Fed warns more cash is needed as US figures reveal widening inequality
Related: Britain is facing 'significant recession', says Rishi Sunak
Related: First-quarter slump just a foretaste of worse to come for UK economy
4.30pm BST
A copy of Jay Powell's speech is online here.
4.24pm BST
Stocks are weakening in London as the closing bell approaches, pushing the FTSE 100 down by 1.5% or 95 points today to just below 5,900.....
4.19pm BST
Brazil's economy is also facing a rough recession this year:
Brazil's government cuts 2020 GDP forecast to -4.7% from 0%. That is slightly gloomier than consensus (currently -4.1%) and would be biggest crash in at least 50 years ... but there are more bearish forecasts out there.
Brazil govt also cuts 2020 inflation forecast to 1.8% from 3.1% ... significantly below the central bank's official target for the year which is still 4.0%.
Related: Bolsonaro attends floating barbecue as Brazil's Covid-19 toll tops 10,000
4.12pm BST
The key message from Jerome Powell today is that additional policy measures" may be needed from the US central bank and fiscal authorities to prevent Covid-19 causing greater long-term economic damage.
Speaking today (see earlier post) The Federal Reserve chair said:
We ought to do what we can to avoid these outcomes, and that may require additional policy measures. At the Fed, we will continue to use our tools to their fullest until the crisis has passed and the economic recovery is well under way."
U.S. markets decline after Fed Chair Powell delivers a grim outlook https://t.co/j0xWfRO9Uv pic.twitter.com/onblD0x2tt
3.50pm BST
City firms won't be forcing their staff back to the office anytime, despite the recent easing of the lockdown.
The UK government's plans to ease lockdown restrictions may have caused confusion and criticism, but some of the world's largest investment banks have a clear message to their City employees - stay at home.
According to internal memos seen by Financial News and people familiar with the matter, banks including Citigroup, Goldman Sachs, HSBC, JPMorgan and Morgan Stanley have told employees that their current remote working arrangements, which have forced them to radically overhaul their staff base, will remain in place for the foreseeable future.
3.30pm BST
Today's UK GDP report shows that the Covid-19 pandemic will cause a much more severe downturn than the financial crisis 12 years ago, writes my colleague Richard Partington:
While the crash after the collapse of Lehman Brothers was supposed to be a once-in-a-lifetime occurrence, the early evidence from the Office for National Statistics for the first quarter of 2020 shows Covid-19 will easily eclipse the last crisis. And the worst damage is yet to come.
Almost no aspect of the economy was unaffected in March. Britain broke all records for a monthly decline in gross domestic product, just two weeks of restrictions needed to drastically alter the economic landscape. All three major drivers of growth - services, manufacturing and construction - went into reverse.
Related: First-quarter slump just a foretaste of worse to come for UK economy
3.18pm BST
The pound just slipped to a one-month low, as today's dire growth figures weigh on the City.
Sterling is down 0.2% against the US dollar at $1.2232, for the first time since early April. It's down a similar amount against the euro, to 1.127.
3.06pm BST
Economic consultancy Fathom have sent over these charts, showing how the slump in growth in March was as sharp as the entire 2008-09 recession:
3.00pm BST
Jay Powell has also revealed just how badly poorer Americans are suffering from the coronavirus pandemic and lockdown:
Wow. Fed Chair Powell just said:
"Almost 40% of those in households making less than $40,000 a year lost a job in March."
This is according to a Fed survey coming out tomorrow. It measures the pain among people who were working in January & February. pic.twitter.com/g762UgbV3j
2.59pm BST
Powell's warning of a possible prolonged' US recession, and reluctance to consider negative interest rates, has hit the markets.
Wall Street has opened in the red, with the Dow Jones industrial average down 218 points or 0.9% at 23,546.
2.44pm BST
Jerome Powell also says the Fed isn't considering cutting interest rates below zero.
According to CNBC he told the Peterson event that:
I know there are fans of the policy, but for now it's not something that we're considering
We think we have a good toolkit and that's the one that we will be using."
POWELL on negative rates: "This is not something we're looking at."
2.34pm BST
America's top central banker has warned of the risk of a prolonged recession', if companies cannot survive the downturn.
The scope and speed of this downturn are without modern precedent, significantly worse than any recession since World War II. We are seeing a severe decline in economic activity and in employment, and already the job gains of the past decade have been erased.
Since the pandemic arrived in force just two months ago, more than 20 million people have lost their jobs.
The record shows that deeper and longer recessions can leave behind lasting damage to the productive capacity of the economy. Avoidable household and business insolvencies can weigh on growth for years to come. Long stretches of unemployment can damage or end workers' careers as their skills lose value and professional networks dry up, and leave families in greater debt. The loss of thousands of small- and medium-sized businesses across the country would destroy the life's work and family legacy of many business and community leaders and limit the strength of the recovery when it comes.
These businesses are a principal source of job creation-something we will sorely need as people seek to return to work. A prolonged recession and weak recovery could also discourage business investment and expansion, further limiting the resurgence of jobs as well as the growth of capital stock and the pace of technological advancement. The result could be an extended period of low productivity growth and stagnant incomes.
Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery. This tradeoff is one for our elected representatives, who wield powers of taxation and spending.
2.17pm BST
Back in the UK, the NIESR thinktank has predicted Britain's economy could shrink by nearly a third in the current quarter.
That would far outstrip anything seen in recent decades (the ONS's quarterly GDP time series goes back to 1955, and shows that Q1 1974 was the worst quarter with a 2.7% drop)
2.02pm BST
Over in America, the prices charged by companies for their wares has tumbled in another sign that the global economy is weakening fast.
The US Producer Price Index (PPI) fell by 1.3% in April, driven by a 3.3% tumble in prices for goods. That's the biggest fall sine the index began in 2009.
Yikes: PPI fell 1.3% - much steeper than expected and largest since series began in 2009. Core PPI fell 0.9%. When Fed Chair Powell speaks at 9am - he will probably focus on getting past deflation, high unemployment and virus.
More deflation. CPI fell yesterday. PPI down 1.3% in April. Core fell 0.3%. Both down more than expected. Covid-19 creating global economic slowdown. But will central bank stimulus eventually create inflation? Stagflation?
1.40pm BST
Reuters has more details about IATA's warning that air travel won't recover for at least three years, and maybe longer:
Airline passenger traffic is not expected to return to pre-crisis levels until 2023 at the earliest and may suffer even more if new health rules impose an excessive cost burden, the International Air Transport Association (IATA) said.
Covid's effects on air travel are certainly going to last a number of years with no quick rebound to 2019 levels," the global airline body's Chief Economist Brian Pearce said.
1.23pm BST
IATA, which represents the world's airlines, has warned it doesn't expect passenger numbers to return to their 2019 levels until 2023.
Chief economist Brian Pearce fears that air travel will take longer to recover than the general economy, given fears that it could spread Covid-19 between countries.
.@IATA Chief Economist says IATA predicts that travel will recover a couple of years after GDP recovery. pic.twitter.com/bToAXHRky5
We are yet to see a stabilization of COVID19, particularly in developing markets. Critically we need to see a reduction in the risk of countries importing the disease. -Pearce pic.twitter.com/QREQsi7OSd
"Even in domestic markets we don't expect to see 2019 levels until 2022. In international markets...we wouldn't expect to see 2019 levels of RPKs until 2023 or 2024." - Pearce
First time I think IATA has said 2024 is now in the recovery timeframe.
12.57pm BST
The prospect of tax rises and spending cuts to fund the UK's 300bn Covid-19 bill hasn't gone down well with some in the City.
Bill Blain, market strategist at Shard Capital argues forcibly that the government should look to grow its way out of the crisis, not inflict more austerity.
The Treasury plan looks a tad premature... We are still in immediate crisis mode. They are also utterly misguided.
The virus is the smoking gun pointed at the heart of the $90 trillion global economy. It's bad. There is blood and gore everywhere. Just how bad we don't yet know, but it's clear of we don't choose the right policies/treatments to address the deepening economic catastrophe, then we're doomed.
The front page of tomorrow's Daily Telegraph:
'Treasury says virus to cost 300bn as it warns of tax rises and pay freeze'#TomorrowsPapersToday pic.twitter.com/5bqxTN7omH
The growth reality is simple. Every single corporate on the planet is going to figure out the outlook. If they are watching and listening to governments rein in spending too early and institute austerity spending, then they will predict and prepare for deeper recession. If every corporate is cutting investment plans, reducing headcount, and instituting cost controls - then the economic effect is inevitable; rising unemployment and an ongoing demand shock.
This is the time to be spending our way out the Coronavirus recession.
We need to get the economy going again but the chaotic nature of the government messaging on how this is going to happen is a real problem. They need to get a grip on a clear message for business, and other sectors as to what they can do and how they can safely restart operations.
12.41pm BST
The slump in UK GDP is likely to be followed by a spike in unemployment.
Professor Costas Milas of the University of Liverpool has plotted together the UK unemployment rate and his measure of the UK output gap* based on today's data.
The output gap (output relative to potential) is now already as bad as it was during the peak of the 2009 crisis. In fact, my quantitative estimates suggest that unemployment might have already reached a 4.1% jobless rate in 2020 Q1 (official figures are due next week).
Since the 2020 Q2 GDP figure will be much worse, it is extremely likely that UK unemployment might reach double figures by summer... And all this despite the job retention scheme...
12.25pm BST
Investors are now paying for the privilege of holding some UK government debt.
Economist Shaun Richards has flagged up that the yield on two-year British gilts fell to -0.04% this morning.
Negative Interest-Rates in the UK Klaxon!
The two-year UK Gilt yield has fallen to -0.04% this morning
Related: Bank of England could increase economic stimulus, says senior official
12.10pm BST
This stunning chart from the ONS shows how Britain's services sector suffered the worst slump on record in March:
...driven by large businesses and with responder-led evidence suggesting that there was a high demand for IT equipment such as desktops and laptops" because of the increase in home working. However, small businesses did experience a fall during March.
Monthly growth for the paper and paper products industry of 11.3% has never been stronger, underpinned by the panic buying" of products such as toilet roll, kitchen roll and facial tissues.
11.09am BST
Eurozone factories also had a torrid March, with widespread shutdown hurting the industry.
New data today shows that industrial production across the euro area slumped by over 11%, a record low - and nearly three times as bad as any single month in the financial crisis.
Eurozone industrial production -11.3% in March.
'UNPRECEDENTED' pic.twitter.com/mZC52MMHWW
March #Eurozone #industrial production down record 11.3% m/m & 12.9% y/y as #coronavirus restrictions took major toll on already struggling #manufacturing sector. Sharp m/m falls in output of consumer durable goods (26.3%) & capital goods (15.9%) https://t.co/Mq90wb1HK6
10.52am BST
The Observer's economics editor, Phillip Inman, tackled the subject of debt and austerity last weekend.
This anticipated today's concerns that a huge deficit in public spending this year would trigger a traditional Treasury response of higher taxes, cuts to welfare payments and state services.
Related: Soaring government debt is now inevitable. It's nothing to fear
10.49am BST
Economist Rupert Seggins has helpfully plotted the Q1 growth figures from major economies, showing that the UK is in a mid-table spot:
UK GDP fell 2%q/q in the first quarter of the year (1st estimate), as Coronavirus effect hit in March. Largest GDP fall since 2008, although the figure for Q2 will see a far bigger fall. France's GDP currently hardest hit in Q1 among OECD countries that have reported. pic.twitter.com/7wQUmkmVEQ
10.33am BST
Keen gardeners have seized the opportunity to return to garden centres as they reopened in England this morning.
Between 30 and 40 customers queued outside Chessington Garden Centre in Surrey before it reopened at 9am this morning.
It's the day gardeners have been waiting for. Between 30 - 40 shoppers queued to get into Chessington Garden Centre as it reopened at 9am this morning pic.twitter.com/2Sp6A4Esud
10.13am BST
Chancellor Rishi Sunak has also warned that UK is very likely" entering a deep recession this year.
Chancellor Rishi Sunak tells @ITVJoel 'Yes, it is now very likely that the UK will face a significant recession this year'https://t.co/K6qG9KmFyk
On Telegraph leak that says internally v-shaped" bounce back seem as optimistic: Sunak: I think it's premature to speculate. But what we do know is in order to make sure that recovery is as swift as strong as we will like it to be we need to take action now to protect jobs..."
In terms of payment, we'll have to have future budgets, we'll get to that, but right now we are still in the midst of this thing and we're clear that we're not going to go back to world of austerity in order to do that.
10.01am BST
The Covid-19 recession is forcing Europe's largest travel company, TUI, to cut 8,000 jobs:
Related: Tui warns of 8,000 job losses as travel firm faces 'greatest crisis'
9.47am BST
Economists don't agree on everything. But the universal consensus is that today's grim UK GDP figures are only a taster for what's ahead of us.
Stefan Koopman, senior market economist at Rabobank, fears Britain will suffer a U-shaped recover, with a double-digit' slump in the April-June quarter:
The UK's economic engine will be much harder to kickstart than it was to stall, as illustrated by the latest raft of data releases. Talk of a V-shaped recovery feels like wishful thinking and we expect prolonged periods of depressed growth across the majority of the economy. A flatter, U-shaped recovery is more likely.
Double-digit declines in GDP growth will follow for the second quarter and the full year, but forecasts for beyond that horizon are near-impossible to predict. The risk of a second lockdown should another outbreak occur combined with rock-bottom levels of consumer confidence make for a potent mix of issues for businesses to deal with."
While economic activity should improve from the second half of this year, it still appears that a rebound is likely to be very gradual, and one that leaves GDP levels at the end of 2021 below where they finished 2019."
The numbers are really bad, especially considering that the lockdown only started mid-March. One of the reasons why the -2% figure is better than expected is because the real impairment of the consumer demand is likely to show up in April numbers.
However, we can now see how the UK's more relaxed lockdown measures helped the economy to fare better than France or Spain which contracted close to 6% over the same period.
The economic damage from roughly only a week of lockdown is striking. Activity growth in April will be much worse.
As social distancing is eased, we will probably see a strong initial bounce in activity. However, there isn't a straightforward trade-off between social distancing and activity.
9.12am BST
Here's our economics editor Larry Elliott on today's grim UK growth figures:
A record monthly plunge in activity meant the UK economy contracted by 2% in the first quarter of 2020, according to official figures.
Data from the Office for National Statistics revealed the immediate impact of the coronavirus lockdown, producing an unprecedented decline in output in March and the sharpest three-month contraction since the depths of the financial crisis in late 2008.
Although restrictions on businesses and individuals were only introduced in mid-March, the ONS said it was enough to cause a 5.8% plunge in activity in March.
All three main components of growth, services, production and construction, were affected by the fallout from the global pandemic - with factories, shops, restaurants, hotels and building sites all closed on government orders.
Related: UK economy shrank by 2% in first quarter after record monthly plunge
9.10am BST
Aston Martin's losses ballooned to 119m in the first three months of the year as the coronavirus pandemic caused the already struggling British carmaker's sales to plunge across the world.
9.03am BST
Over in the City, the FTSE 100 index of blue-chip shares has fallen by 1.3% in early trading, down 78 points to 5916 points.
Other European markets are also in the red, as investors fret about the risk of a second wave of Covid-19 infections as lockdowns are lifted.
..there is a real risk that you will trigger an outbreak that you might not be able to control, which in fact, paradoxically, will set you back - not only leading to some suffering and death that could be avoided, but could even set you back on the road on trying to get economic recovery
The government's announcement that workers in the manufacturing and construction sector should return to work this week where safe, as well as opening the housing market, could mitigate some of the disruption to business activity in the current quarter.
However, this will depend on the effectiveness of current lockdown measures in preventing a second wave of infections, which may necessitate the reimposition of these measures later on in the year."
8.55am BST
Tej Parikh, chief economist at the Institute of Directors, isn't convinced that Britain will emerge stronger' from the lockdown slump, as Rishi Sunak claims.
Parikh fears that activity levels among UK firms will remain depressed for the foreseeable future", given the challenge of obeying physical distancing rules:
While countless companies have made adjustments with admirable speed, many will find it difficult to operate at anything like normal capacity under social distancing rules. The furlough scheme has undoubtedly staved off redundancies, and the new flexibility provides businesses a better chance of rebooting.
The Treasury will need to continue innovating to kickstart any recovery. The Government's loan scheme provided ready cash, but now leaves many firms saddled with debt. Unless this is managed well, it will drag on business investment for long after the lockdown ends."
8.40am BST
Chancellor Rishi Sunak says he's not surprised that the UK economy shrank 2% in the last quarter.
Sunak blamed the economic damage caused by the Covid-19 pandemic, adding that his freshly-extended jobs retention scheme should help Britain get through the crisis.
In common with pretty much every other economy around the world we're facing severe impact from the coronavirus. You're seeing that in the numbers.
That's why we've taken the unprecedented action that we have to support people's jobs, their incomes and livelihoods at this time, and support businesses, so we can get through this period of severe disruption and emerge stronger on the other side.
BREAKING: Chancellor Rishi Sunak says it is "no surprise" the UK economy shrank by 2% in the three months to the end of March, as the UK faces "severe impact" from the #coronavirus.
Read more on this story: https://t.co/HF2N5a8Xlv #GDP pic.twitter.com/JMza4alO22
8.29am BST
Many other countries suffered worse downturns than the UK in the last quarter, particularly in Europe.
And there's a clear link between the tumble in GDP and the severity of the lockdown measures introduced to combat Covid-19.
8.17am BST
This monthly chart of UK growth shows just how dramatically the economy shut down in March, with GDP shrinking by an uprecedented 5.8%.
The lockdown was only in place for seven working days in the first three months of the year. But it was still enough to bring about the biggest quarterly economic contraction since the peak of the financial crisis and the weakest single-month change on record.
With the country in full or partial lockdown well into the second half of the year, the grim economic milestones hit in the latest data will be shattered next time around.
8.08am BST
You can read today's UK GDP reports online, here:
7.59am BST
The UK economy wasn't doing particularly well before the Covid-19 lockdown struck.
GDP did rise by 0.1% in January (when there was talk of a post-election Boris Bounce'), but the economy then contracted by 0.2% in February - as the coronavirus pandemic began to hurt the global economy.
7.47am BST
March was particularly awful for these sectors of the UK economy:
7.42am BST
March was a particularly dire month for the economy - with GDP slumping by 5.8%.
It's the worst performance since the ONS started calculating monthly data back in 1997 - so worst than in any single month during the financial crisis.
Just out from @ONS : UK GDP falls by 2.0% in Q1 the biggest fall since financial crisis. GDP in month of March falls by 5.8%, the biggest fall since records began in 1997.
With the arrival of the pandemic nearly every aspect of the economy was hit in March, dragging growth to a record monthly fall.
Services and construction saw record declines on the month with education, car sales and restaurants all falling substantially.
7.32am BST
Britain's services sector (which makes up around three-quarters of the economy) has suffered its biggest quarterly contraction on record.
The Office for National Statistics says:
In response to the coronavirus (COVID-19) pandemic, public health restrictions and social distancing measures have been put in place in the UK, leading to a widespread disruption to economic activity. These measures have impacted upon the spending behaviours of consumers as well as how businesses and their employees operate. It has also affected the provision of services provided by government, including health and education.
Services output decreased by 1.9% in Quarter 1 (January to March) 2020, the largest quarterly fall since records began. Production output fell by 2.1% in Quarter 1 2020, driven by declines in manufacturing. Construction output decreased by 2.6% in the first quarter.
7.26am BST
This chart shows just how sharply the UK economy shrank in the first quarter:
7.20am BST
Here are the key points from today's UK GDP growth report, showing how the economy shank in January-March:
7.07am 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 - the UK economy has suffered its worst contraction since the depths of the financial crisis, as the Covid-19 slump begins.
There was a 2.0% fall in UK GDP in Quarter 1 (Jan to March) 2020 https://t.co/SWbwgp79J8 pic.twitter.com/VS2Nzc3Rww
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