The rise and fall

Economic Week In Review | Issue 243 | 24 August 2020

UK news

  • Public debt | Government borrowing has hit £2tn for the first time, rising to 100.5% of GDP, its first move above 100% since 1961 according to the ONS.
  • Consumer spending bounced back in July to be 2.4% higher than a year before. This was driven by a 16.2% increase in eCommerce as face-to-face spending was 6.9% lower than 2019 levels according to IHS Markit and Visa. In May, overall spending was nearly 20% lower on an annual basis.
  • Furlough | 12% of the UK’s workforce is still furloughed, increasing concerns over the scheme being phased out. Yet it is encouraging to see that 80% of businesses surveyed by the ONS say that they are at no or low risk of financial failure.
  • UK PMI | IHS Markit’s latest flash PMI reading for the UK economy showed an 82-month high of 60.3. However, the survey showed sustained job cuts across the private sector.
  • Brexit | EU chief negotiator, Michael Barnier, has warned that a deal between the EU and the UK may not be achievable saying “Too often this week it felt as if we are going backwards more than forwards”.
  • Job losses | Marks and Spencer announced it will cut 7,000 jobs in stores and management over the next three months as the pandemic has created a “material shift in trade”. It hopes that a “significant proportion” of the cuts will be voluntary redundancy and early retirement.

Global news

  • Eurozone rebound | PMI data for the bloc fell slightly from 54.9 in July to 51.6 in August. The index marks optimism for the next month in comparison to the current month and anything above 50.0 marks growth.

Materials, commodities and currencies

  • UK manufacturing | The latest survey by the CBI showed factory output in the three months to August continuing to fall, but the pace of decline had eased from the record decline seen in July.
  • Iron ore prices have hit six-and-a-half year highs as China’s steel output has increased 9% on an annual basis. Iron ore is currently trading at $124/tonne, 31% higher than January levels, or 58% higher than its February lows. BHP group doesn’t expect the rally to be sustainable in the medium term.
  • The S&P 500 closed at a record high, fuelled by growth in tech companies.

Construction and property news

  • Administration levels | According to Creditsafe, 18 construction firms entered administration in July, matching June’s total.
  • Eviction bans that aimed to stop automatic evictions of tenants affected by the outbreak of Covid are expected to be extended by four weeks. Politicians, public health organisations, councils, and charities have voiced concerns that increased homeless figures could “significantly contribute to a rise in coronavirus infections”.
  • Acceleration Unit | A team of specialists will join the Department for Transport to advise on accelerating road and rail schemes, tackling delays.
  • Crossrail | bosses confirmed that the project will now be delayed until the first half of 2022, and will cost an additional £1.1bn.
  • London offices | Landlords are reportedly spending 1% to 2% of total initial investment on making the workplace “trustable”. Safety measures include touchless entry systems, desk dividers, and better delivery of fresh air.
  • Supermarkets | The pandemic has increased investors’ appetites for supermarkets. More than £1bn of transactions on supermarket sites have taken place so far according to Colliers.
  • Sovereign wealth funds invested 65% less in the UK property market in the first 7 months of 2020 than they did last year according to Reuters and Global SWF. Types of property also changed with a greater focus on logistics spaces and less on offices and retail.
  • Hong Kong | Investors from Hong Kong had become the fifth largest group of foreign investors in central London in the last 12 months, accounting for 4% of purchases, up from 2.5% in 2016.
  • London office rents could fall by 40% in the next 18 months, according to the Society of Industrial & Office Realtors and McCalmont Woods Real Estate.

Friday to Friday

Price / Index Week %
change
Annual %
change
FTSE 100 6,001.89 -1.45 -15.41
FTSE 250 17,577.68 -0.89 -8.65
Nikkei 22,985.51 -1.30 10.98
CSI 300 4,749.56 0.96 24.31
S&P 500 3,397.16 0.72 18.32
Nasdaq 11,311.80 2.65 45.93
CAC 40 4,896.33 -1.34 -8.08
Dax 12,764.80 -1.06 9.93
$ per £ 1.3098 -0.07 6.82
€ per £ 1.1124 0.42 1.06
Gold £/oz 1,482.42 -0.27 19.25
Brent Oil $/barrel 44.35 -1.00 -25.26

Weekly Summary

The week contained some fairly positive news: increasing public spending, positive PMI figures in the UK and abroad and a lessening pace of decline in the UK manufacturing sector. However, as the pandemic continues to work its way through the economy, we are beginning to see its impact on investor sentiment and the labour market with significant job losses announced over the past few weeks.

There continue to be some key points and indicators to look out for in order to see the scale of the UK’s recovery, such as a continuation of positive PMI figures and the furlough scheme winding down in a few weeks, in addition to new Brexit negotiations starting on 7th September.

Author contact

Rachel Coleman
Rachel Coleman,
Associate Research Analyst

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