How the coronavirus crisis has hit the UK’s economic outlook

Decline in new Covid-19 cases
The number of new confirmed cases of Covid-19 has been steadily falling from a peak reached after the government lockdown began, even as more tests are being done. New daily cases in London are now close to zero. As of 26 May, 3,681,295 people have been tested, of which 265,227 had coronavirus. The number of daily deaths with Covid-19 has been falling. In total, 37,048 people have died.

Markets rally on economy optimism
Global financial markets have risen in the past month amid hopes for a vaccine and that the economic fallout from Covid-19 can be contained. Some analysts warn that markets are failing to reflect the scale of the international recession and risk that no vaccine is found. The FTSE 100 has risen 3% in the past month to 6144, recovering ground lost in March when it collapsed the most since Black Monday in October 1987.

Road trips are climbing
There are signs lockdown is starting to fray around the edges, with growing numbers of journeys being made. Apple mobility data – which records requests made to Apple Maps for directions – suggests driving on Britain’s roads is down 31% from around the start of the year, compared to more than 60% down in early April.

Business slump recovers slightly
Surveys of business activity show the world economy continued to shrink at a record pace this month, albeit at a slower pace than in April when most major countries’ lockdown measures were toughest. After imposing tight controls on business and social life later than other European countries, Britain’s economy appears to be underperforming many other wealthy nations. China, as the first country struck by Covid-19, is gradually recovering as lockdown controls are lifted. In the UK, the purchasing manager index (PMI) compiled from business surveys by IHS Markit and the Chartered Institute of Procurement and Supply rose to 28.9 in May from a record low of 13.8 in April. However, that is still far below the 50.0 mark that separates economic growth from contraction.

First steps into recession taken
Official figures show just nine days of lockdown caused gross domestic product (GDP), the broadest measure of the economy, to fall by 5.8% in March, and by 2% in the first three months of the year. Activity declined across the board, with a slump by almost as much in a single month as in the 18-month slide caused by the 2008 financial crisis. Economists regard two consecutive quarters of shrinking GDP as the technical definition of recession. Most forecast a second quarterly decline in the three months to June, given the scale of restrictions on business and social life, with the Bank of England pencilling in a 25% drop.

Retail sales plunge during lockdown
With people confined to their homes and much of the high street closed, official figures show a drop in retail sales of 5.2% in March was dwarfed by an 18.1% plunge in April – as the first full month of the lockdown sapped consumer demand. Boris Johnson is attempting to reboot the retail sector from the start of June, allowing non-essential shops to reopen. But with rising job losses and a continued health risks from Covid-19, analysts do not expect a sharp rise in sales soon.

Unemployment begins to spiral
The number of people claiming unemployment benefits rose by almost 70% in April, the most since records began, to reach 2.1 million as rising numbers of people lose their jobs during the health emergency. Experts said the dramatic increase would have been much higher without the government’s furlough scheme. About a third of the British workforce are receiving wage subsidies from the Treasury at a cost of almost £22bn, with 8.4m jobs protected and 2.3 million self-employed people claiming support. The furlough scheme is due to be scaled back from August.

Tumbling oil price sinks inflation
Inflation in Britain fell to 0.8% in April, its lowest level in four years, as the collapsing global oil price sent the cost of petrol tumbling. Fading demand for crude as the global economy slips into recession – as well as a price war between Saudi Arabia and Russia – has caused oil prices to plunge in recent months. Consumer groups have warned that prices of some high-demand products have gone up during the lockdown, but retailers struggling to sell other goods has pushed down general inflation.

House prices slide
The government effectively putting the housing market in the deep freeze during lockdown, alongside concerns over the economic outlook, has sent house prices sliding. With transaction volumes evaporating, house prices fell by 0.6% in March from a month earlier, according to figures compiled by Halifax – Britain’s biggest mortgage lender. Some forecasters expect house prices to fall by as much as 13% this year.

Government borrowing hits peacetime record
The government borrowed a record £62bn in April – more than had been expected for the whole of 2020. The budget deficit – the shortfall between state spending and income from taxes – is spiraling as tax receipts fall off a cliff with the economy largely at a standstill, and as the Treasury steps in with emergency financial support. The Office for Budget Responsibility, the Treasury tax and spending watchdog, estimates the deficit could max out close to £300bn this year, five times the sum borrowed a year ago, and almost twice as much as after the 2008 financial crisis.

And another thing … the Bank of England stands ready to act
The Bank of England has crashed interest rates down to the lowest levels in its 325-year history, as Britain slips into the deepest recession for more than three centuries. Aiming to cushion the blow by making borrowing cheaper for households and businesses, the base rate has been cut to 0.1% and the Bank has expanded its £645bn quantitative easing bond-buying scheme. Writing in the Guardian, the Bank’s governor Andrew Bailey said it could go further still if necessary to support jobs and growth.

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