By William Schomberg and David Milliken
LONDON (Reuters) – Britain’s economy has stabilised after a new COVID-19 lockdown last month hit retailers, and business and consumers are hopeful the vaccination campaign will spur a recovery, data showed on Friday.
The IHS Markit/CIPS flash composite Purchasing Managers’ Index, a survey of businesses, suggested the economy was barely shrinking in the first half of February as companies adjusted to the latest restrictions.
A separate survey of households showed consumers at their most confident since the pandemic began.
Britain’s economy had its biggest slump in 300 years in 2020, when it contracted by 10%, and will shrink by 4% in the first three months of 2021, the Bank of England predicts.
The central bank expects a strong subsequent recovery because of the COVID-19 vaccination programme – though policymaker Gertjan Vlieghe said in a speech on Friday that the BoE could need to cut interest rates below zero later this year if unemployment stayed high.
Prime Minister Boris Johnson is due on Monday to announce the next steps in England’s lockdown but has said any easing of restrictions will be gradual.
Official data for January underscored the impact of the latest lockdown on retailers.
Retail sales volumes slumped by 8.2% from December, a much bigger fall than the 2.5% decrease forecast in a Reuters poll of economists, and the second largest on record.
“The only good thing about the current lockdown is that it’s no way near as bad for the economy as the first one,” Paul Dales, an economist at Capital Economics, said.
The smaller fall in retail sales than last April’s 18% plunge reflected growth in online shopping.
BORROWING SURGE SLOWED IN JANUARY
There was some better news for finance minister Rishi Sunak as he prepares to announce Britain’s next annual budget on March 3.
Though public sector borrowing of 8.8 billion pounds ($12.3 billion) was the first January deficit in a decade, it was much less than the 24.5 billion pounds forecast in a Reuters poll.
That took borrowing since the start of the financial year in April to 270.6 billion pounds, reflecting a surge in spending and tax cuts ordered by Sunak.
The figure does not count losses on government-backed loans which could add 30 billion pounds to the shortfall this year, but the deficit is likely to be smaller than official forecasts, the Institute for Fiscal Studies think tank said.
Sunak is expected to extend a costly wage subsidy programme, at least for the hardest-hit sectors, but he said the time for a reckoning would come.
“It’s right that once our economy begins to recover, we should look to return the public finances to a more sustainable footing and I’ll always be honest with the British people about how we will do this,” he said.
Some economists expect higher taxes sooner rather than later.
“Big tax rises eventually will have to be announced, with 2022 likely to be the worst year, so that they will be far from voters’ minds by the time of the next general election in May 2024,” Samuel Tombs, at Pantheon Macroeconomics, said.
Public debt rose to 2.115 trillion pounds, or 97.9% of gross domestic product – a percentage not seen since the early 1960s.
The PMI survey and a separate measure of manufacturing from the Confederation of British Industry, showing factory orders suffering the smallest hit in a year, gave Sunak some cause for optimism.
IHS Markit’s chief business economist, Chris Williamson, said the improvement in business expectations suggested the economy was “poised for recovery.”
However the PMI survey showed factory output in February grew at its slowest rate in nine months. Many firms reported extra costs and disruption to supply chains from new post-Brexit barriers to trade with the European Union since Jan. 1.
Vlieghe warned against over-interpreting any early signs of growth. “It is perfectly possible that we have a short period of pent up demand, after which demand eases back again,” he said.
“We are experiencing something between a swoosh-shaped recovery and a W-shaped recovery. We are clearly not experiencing a V-shaped recovery.”
($1 = 0.7160 pounds)
(Editing by Angus MacSwan and Timothy Heritage)
TSX rises 0.6% to 18,490.76
* The Toronto Stock Exchange‘s TSX rises 0.60 percent to 18,490.76
* Leading the index were Mullen Group Ltd <MTL.TO>, up 8.0%, Sprott Inc, up 6.5%, and Ero Copper Corp, higher by 5.4%.
* Lagging shares were Lightspeed POS Inc, down 7.4%, Ballard Power Systems Inc, down 5.5%, and Hudbay Minerals Inc, lower by 4.3%.
* On the TSX 138 issues rose and 79 fell as a 1.7-to-1 ratio favored advancers. There were 36 new highs and no new lows, with total volume of 198.4 million shares.
* The most heavily traded shares by volume were Suncor Energy Inc, Air Canada and Cenovus Energy Inc.
* The TSX’s energy group fell 0.89 points, or 0.7%, while the financials sector climbed 5.15 points, or 1.5%.
* West Texas Intermediate crude futures fell 2.13%, or $1.41, to $64.68 a barrel. Brent crude fell 2.06%, or $1.43, to $67.93 [O/R]
* The TSX is up 6.1% for the year.
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Canada Dollar dips as short-covering propels greenback broadly higher
By Fergal Smith
TORONTO (Reuters) – The Canadian dollar edged lower against its U.S. counterpart on Monday but fared better than most other G10 currencies as the United States moved closer to passing fiscal stimulus and ahead of an interest rate decision by the Bank of Canada on Wednesday.
The loonie was trading 0.1% lower at 1.2666 to the greenback, or 78.95 U.S. cents.
“We have seen some modest defensiveness with respect to the loonie,” said Bipan Rai, North America head, FX strategy at CIBC Capital Markets. “It just feels like the market is closing up shorts in U.S. dollars.”
The safe-haven U.S. dollar notched a 3-1/2-month high against a basket of major currencies as elevated U.S. Treasury yields spooked investors.
Pressure on the loonie was less than on some other currencies because Canadian yields have been keeping pace with the recent move higher in U.S. yields and oil has climbed, Rai said.
Besides the greenback, the only other G10 currency to gain ground against the Canadian dollar on Monday was the Norwegian crown.
The U.S. Senate on Saturday passed the stimulus package, and President Joe Biden said he hoped for quick passage of the revised bill by the House of Representatives.
Canada sends about 75% of its exports to the United States, including oil.
Oil settled 1.6% lower at $65.05, giving back some recent gains, after Saudi Arabia said there were was no loss of property following attacks on its oil facilities.
Investors see rising chances that the Bank of Canada would hike interest rates next year as the economic outlook improves, but the central bank is likely to push back against those bets for now, pointing to still high unemployment, analysts say.
Canada‘s 10-year yield touched its highest since January last year at 1.545% before dipping to 1.521%, up 1.9 basis points on the day.
(Reporting by Fergal Smith; Editing by Marguerita Choy and Jonathan Oatis)
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