Economy
UK economy suffers record 9.9% slump in 2020 after COVID-19 hit – The Guardian
By David Milliken and William Schomberg
LONDON (Reuters) – Britain’s coronavirus-ravaged economy slumped by 9.9% in 2020, the biggest annual crash in output in more than 300 years, but it avoided heading back towards recession at the end of last year and looks to be on course for a recovery in 2021.
Official figures showed gross domestic product (GDP) grew 1.0% between October and December, at the top end of the range of forecasts by economists in a Reuters poll.
This makes it likely that Britain will escape two straight quarters of contraction – the standard definition of recession in Europe – even though the economy is set to shrink sharply in early 2021 due to the effects of a third COVID lockdown.
“As and when restrictions are eased, we continue to expect a vigorous rebound in the economy,” said Dean Turner, an economist at UBS Global Wealth Management.
Britain’s economy grew 1.2% in December alone, after a 2.3% fall in output in November when there was a partial lockdown, leaving output 6.3% lower than in February before the start of the pandemic, the Office for National Statistics said.
However the Bank of England forecasts the economy will shrink by 4% in the first three months of 2021 due to a new lockdown and Brexit disruption.
The central bank thinks it will take until early 2022 before it regains its pre-COVID size, assuming vaccination continues to smoothly. Many economists think it will take longer.
“Today’s figures show that the economy has experienced a serious shock as a result of the pandemic, which has been felt by countries around the world,” finance minister Rishi Sunak said.
Sunak, facing the heaviest borrowing since World War Two, will set out how much longer he intends to continue this emergency support at an annual budget on March 3.
HARDER HIT THAN MOST
Last year’s fall in output was the biggest since modern official records began after World War Two. Longer-running historical data hosted by the Bank of England suggest it was the biggest drop since 1709 when Britain suffered a ‘Great Frost’.
The fall is also steeper than almost any other big economy, though Spain – also hard-hit by the virus – suffered an 11% decline.
Britain has reported Europe’s highest death toll from COVID-19 and is among the world’s highest in terms of deaths per head.
Some of the damage also reflects how Britain’s economy typically relies more on face-to-face consumer services than other countries, as well as disruption to schooling and routine healthcare which few other countries factored in to GDP.
However, Britain has vaccinated many more people than other European countries so far, raising the prospect of a bounce-back for its economy later this year.
The BoE’s chief economist Andy Haldane said on Thursday that economic growth could hit double digits over the coming year because of households are sitting on enforced savings after spending so much time stuck at home.
Economists said Friday’s figures showed that Britain’s economy was proving more resilient to lockdowns than earlier in 2020.
“Damage from restrictions has diminished since the initial lockdown in the spring – and is more heavily concentrated in a few hard-hit, largely consumer-facing industries, hospitality being the main one,” ING economist James Smith said.
The impact of the pandemic has been highly uneven. Some sectors such as manufacturing showed output just 2.5% below year-ago levels in December, while the much larger services sector was 7.2% below.
Within the services sector, high-street retailers, pubs and restaurants have been hit especially hard.
But unemployment has risen much less than expected, largely due to government subsidies to keep people in work.
(Writing by David Milliken; Editing by Willian Schomberg, Guy Faulconbridge and Raissa Kasolowsky)
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Oil prices edged higher on Monday as European economic reopenings and rising U.S. demand helped offset weakness earlier in the session due to surging coronavirus cases in Asia and underwhelming Chinese manufacturing data.
Brent crude rose 56 cents, or 0.8%, to $69.27 a barrel by 11:22 a.m. ET (1522 GMT,) and West Texas Intermediate (WTI) crude was up 63 cents, or 1%, at $66.
The British economy reopened on Monday, giving 65 million people a measure of freedom after a four-month COVID-19 lockdown.
With accelerating vaccination rates, France and Spain have relaxed COVID-related restrictions, and Portugal and the Netherlands on Saturday eased travel restrictions as the holiday season approaches.
The promise of economic growth has supported oil prices in recent weeks, although the pace of inflation has kept many investors concerned about the possible rise of interest rates and fall of consumer spending.
“The news is not all negative on the demand front as the U.S. saw air travel jump on Sunday to 1.8 million people, the highest total since March 2020,” said Edward Moya, senior market analyst at OANDA.
United Airlines also announced they will add 400 daily flights to July for European destinations, Moya noted.
Summer travel bookings rose 214% from 2020 levels, the airline said, adding that it planned to fly 80% of its U.S. schedule compared with July 2019.
Worries about the spread of the coronavirus variant first detected in India are also making investors cautious.
Some Indian states said on Sunday they would extend lockdowns to help contain the pandemic, which has killed more than 270,000 people in the country.
Domestic sales of gasoline and diesel by Indian state refiners plunged by a fifth in the first half of May from a month earlier.
Singapore is preparing to close schools this week and Japan has declared a state of emergency in three more prefectures to contain outbreaks.
“The market is seemingly trapped between observing encouraging improvements in demand in the United States and Europe, and the sluggishness in consumption due to the persistence of COVID-19 in Asia,” StoneX analyst Kevin Solomon said.
China’s factories slowed their output growth in April and retail sales significantly missed expectations as officials warned of new problems affecting the recovery in the world’s second-largest economy.
China’s crude oil throughput rose 7.5% in April from the same month a year ago, but remained off the peak seen in the last quarter of 2020.
U.S. retail gasoline prices hit a fresh seven-year high on Monday, as it will take some time for the nation’s largest fuel pipeline’s supply chain to fully catch up after a cyberattack that resulted in a six-day system outage last week and mass panic-buying.
(Reporting by Bozorgmehr Sharafedin in London, additional reporting by Yuka Obayashi in Tokyo; Editing by Marguerita Choy and Barbara Lewis)
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The World Economic Forum cancelled its 2021 annual meeting scheduled for Singapore in three months’ time on Monday, saying it was not possible to hold such a large, global event due to the COVID-19 situation.
“Regretfully, the tragic circumstances unfolding across geographies, an uncertain travel outlook, differing speeds of vaccination rollout and the uncertainty around new variants combine to make it impossible to realise a global meeting with business, government and civil society leaders from all over the world at the scale which was planned,” it said in a statement.
WEF had already pushed back its special meeting in Singapore, initially scheduled for mid-May, following the announcement last year it was moving from its usual home in the Swiss alps due to the pandemic situation in Europe.
The city-state has in recent days imposed some of the tightest restrictions since it exited a lockdown last year to combat a spike in local COVID-19 infections.
Acknowledging WEF’s decision to cancel the event, the Singapore trade ministry said on Monday that it “fully appreciates the challenges caused by the ongoing global pandemic, particularly for a large meeting with a broad span of international participants.”
The WEF’s next annual meeting will instead take place in the first half of 2022. Its location and date will be determined based on an assessment of the situation later this summer, it added in a statement.
(Reporting by Michael Shields; Editing by Toby Chopra and Catherine Evans)
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Wall Street’s main indexes slipped on Monday after a sharp recovery late last week, as signs of inflationary pressures building up in the economy kept investors worried about monetary policy tightening.
Shares of Discovery Inc jumped 7% on plans to merge with U.S. telecoms giant AT&T Inc’s media assets, including CNN and HBO. AT&T shares gained 3.8%.
The S&P 500 saw its biggest one-day jump in more than a month on Friday as investors picked up beaten-down stocks following a pullback earlier in the week on concerns around inflation and a sooner-than-expected tightening by the U.S. Federal Reserve.
In a relatively quiet week for economic data, minutes on Wednesday from the Fed’s policy meeting last month could shed more light on the policymakers’ outlook of an economic rebound.
“The conversation around inflation is really the focus of the market and everyone’s trying to get a picture on whether the Fed is right in saying if this is all temporary or is this something they need to take more seriously,” said Greg Swenson, founding partner of Brigg Macadam.
“You’ll continue to see rotation (out of technology stocks) not only because of the outperformance of tech in the last year versus cyclicals, but the only way you can stay long equities and hedge against inflation is own more cyclicals – bank, energy.”
The Russell 1000 value index, which includes energy and bank stocks, continued to outperform on Monday, taking its year-to-date gains to 17.3%, versus its tech-laden growth counterpart’s rise of about 4%.
At 9:44 a.m. ET, the Dow Jones Industrial Average was down 68.67 points, or 0.20%, at 34,313.46, the S&P 500 was down 9.19 points, or 0.22%, at 4,164.66, and the Nasdaq Composite was down 48.45 points, or 0.36%, at 13,381.52.
Four of the 11 major S&P sectors declined, with technology leading losses.
Earnings this week will be scrutinized for clues on whether rising prices had any impact on consumer demand and if retailers could sustain their strong earnings momentum.
Walmart Inc, home improvement chain Home Depot Inc and department store operator Macy’s are set to report on Tuesday, with Target Corp Ralph Lauren and TJX Cos on tap later in the week.
With the earnings season at its tail-end, overall earnings for S&P 500 companies are expected to have climbed 50.6% from a year ago, according to Refinitiv IBES, the strongest pace of growth in 11 years.
ViacomCBS shares gained 3.5% after a report that billionaire George Soros’s investment firm bought stocks as they were being sold off during the meltdown of Archegos Capital Management.
Cryptocurrency-related stocks like Marathon Digital, Riot Blockchain and Coinbase fell between 6% and 9% as bitcoin swung in volatile trading after Tesla boss Elon Musk’s tweets about the carmaker’s bitcoin holdings.
Declining issues outnumbered advancers for a 1.27-to-1 ratio on the NYSE and for a 1.27-to-1 ratio on the Nasdaq.
The S&P index recorded 24 new 52-week highs and no new low, while the Nasdaq recorded 44 new highs and 19 new lows.
(Reporting by Medha Singh and Sruthi Shankar in Bengaluru; Editing by Saumyadeb Chakrabarty and Maju Samuel)
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