Issue 246 | 14 September 2020 - Turner & Townsend alinea

Economic Week In Review | Issue 246 | 14 September 2020

Brexit

Trade deal success | The UK has struck its first post-Brexit trade deal, calling the deal with the Japan “a historic moment”. 99% of exports to Japan will be tariff-free and the deal will improve market access for UK financial services. However, commentators have pointed out that the trade deal commits the UK to stricter state aid curbs than those currently being discussed with the EU.
No-deal | The EU has increased its planning for no-deal at the end of the year after issuing the UK with an ultimatum over the new UK Internal Market Bill which overrides part of the Withdrawal Agreement. The UK government has been urged to withdraw the bill “by the end of the month”. Morgan Stanley said that the risk of leaving without a deal has increased to 40%.

UK news

GDP | The UK’s economy grew 6.6% in July but is still 11.7% below its pre-coronavirus peak. ING describes the recent positive figures as a “mechanical rebound” – a product of several sectors reopening.
Furlough | MPs have called for a “targeted extension” to the furlough scheme to support business which are most affected by social distancing rules. The scheme is set to end at the end of October and according to the latest ONS survey, 11% of the workforce is still furloughed.

Materials and currencies

Bricks | Forterra has said that trading since reopening has “exceeded management expectations” and production has resumed at all factories. Sales have rebounded to 90% of normal levels.
Sterling exchange rates fell again this week and is set for its worst week against the euro and the dollar since mid-March.

Construction and property news

Office investment | According to Knight Frank, London topped the list for global city investment in H1 this year. London saw £2.6bn of investment in the period, with international investors accounting for 76.6% of this. In July, £961m worth of transactions was made.
Impact of Covid | The latest survey from the ONS showed that the proportion of the construction workforce currently furloughed has fallen to 7.5% and only 6% of firms have reported issues accessing goods or services, down from a peak of 27% in April. Not all of the news was positive as a high percentage of firms reported unpaid debts owed to them, falling turnover, and increasing prices.
Infrastructure | The latest report from the cross-party House of Commons Treasury select committee (which came out on Friday) called for the government to assess the government’s “levelling up” strategy and whether the current “shovel ready” infrastructure projects support this.
Construction output increased by 17.6% in the month to July 2020 but remains 12.8% lower than a year ago.

Friday to Friday

	Price / Index	Week % change	Annual % change
FTSE 100	6,032.09	4.02	-18.13
FTSE 250	17,555.87	1.16	-13.07
Nikkei	23,406.49	1.02	6.45
CSI 300	4,627.28	-3.00	16.49
S&P 500	3,340.97	-2.51	11.09
Nasdaq	10,853.54	-4.06	32.74
CAC 40	5,034.14	1.39	-10.99
Dax	13,202.84	2.80	5.89
$ per £	1.2786	-3.36	2.61
€ per £	1.0806	-3.48	-3.96
Gold £/oz	1,516.22	4.09	27.34
Brent Oil $/barrel	39.83	-6.63	-33.84

The impact of Covid: July versus February output

GDP -11.7%
Services -12.6%
Manufacturing -8.7%
Construction -11.6%
Agriculture -2.0%

Weekly Summary

This week’s eagerly anticipated negotiations with the EU created more uncertainty over the UK’s future trading relationships after the UK released its Internal Market Bill, admitting that it would break international laws.

Achieving a trade deal with Japan seems to be a step in the right direction, but comes with significant criticisms.

Alongside trade news, data on increasing Covid-19 cases was central to the week’s challenges with new restrictions on group sizes introduced along with a number of new local lockdowns.

However, the economy continued to regain some of the lost output in the first half of the year, with analysts saying that the UK was on track for a “Nike swoosh” recovery.