By any stretch of the imagination, the economic data that has been part of the top two or three nightly news items for the last six weeks has been colossally dreadful.
Bright and early this morning we have seen the Bank of England warn UK GDP will slump by 14 per cent this year as the country faces the worst recession for three centuries.
Unsurprisingly, the Bank also said it is holding rates at a rock bottom 0.1 per cent for now, but stopped short of increasing its quantitative easing measures for now.
IHS Markit’s chief business economist Chris Williamson says the coronavirus ‘is going to accelerate the demise of the high street as we know it’
The bad stats never seems to end. We have constantly heard analysts use the phrases ‘worst performance in living memory,’ ‘an unprecedented fall in demand’ or the ‘biggest slump in history.’
Government agencies and businesses are now producing post-lockdown plans to help revitalise businesses and society at large. But what does the terrible economic data tell us about what shape the recovery will have? And is it too late for too many companies?
1) 6.3 million workers have been furloughed
Around a quarter of all employees have been put on leave as of last Sunday, at an estimated cost of £8billion. This means that the state now pays over half of Britons in some form.
Had the Coronavirus Job Retention Scheme (CJRS) not been introduced, there would probably be millions more people out of a job. The government and businesses both admit though that the furlough scheme is not financially sustainable.
So if the CJRS cannot go on forever, how does the government prevent a massive rise in unemployment when the scheme starts to wind down?
Resolution Foundation economist Dan Tomlinson says it is crucial there is ‘no cliff-edge in support’ once the programme concludes on June 30.
He writes: ‘This will likely mean extending the scheme but reducing its generosity, and also including the option of partial-furlough so that businesses can bring employees back on a part-time basis and have the state top-up some of their employees’ lost pay.
‘The really tough decision for the Chancellor will be when to wind down support completely. That will be very difficult to do but should take place as and when the evidence on returning economic activity points towards each sector being able to be broadly self-sufficient.’
2) Record low PMI figures in April: 13.4 for services; 32.6 for manufacturing
Shop floors and shopping centres have become more deserted as people avoid the high street and cut back spending on non-essential items.
Both the IHS Markit/CIPS UK Services and Manufacturing Purchasing Managers’ Index (PMI) have plunged to lows not seen since the survey began. Any number above 50 on the survey indicates expansion while below 50 notes a contraction.
These sectors will see their PMI increase sometime in the future, but the plummeting numbers show just how much both sectors have been devastated by the coronavirus.
Social venues like bars, restaurants and pubs will struggle financially when they reopen if they have to abide by strict social distancing measures
For many businesses like restaurants, bars and pubs though, this may be the final straw, says IHS Markit’s chief business economist Chris Williamson. Speaking to This is Money, he pointed out that many service companies will find it hard to abide by strict social distancing rules.
‘This is going to accelerate the demise of the high street as we know it,’ he predicts. Lots of chains are going to struggle financially. If you can only let a certain number of people in your shop at any one time over the next six months, lots of shops are going to struggle.
Manufacturers also tend to make essential products that are always in demand, while service firms will be ‘at the back of the queue’ when it comes to reopening the economy. ‘The talk of a V-shaped recovery looks very misplaced given the scale of the decline we have got,’ he warns.
3) Interest rates cut to record low of 0.1 per cent
The Bank of England slashed interest rates, which have already been low since the global financial crisis (GFC), to 0.1 per cent.
It came alongside a large injection of quantitative easing totalling about £200billion. This is very typical behaviour among central banks when economies experience a downturn.
Reducing it to 0.1 per cent is very unusual though. And according to a Reuters poll of economists, it looks like it could remain that way for the rest of the year, even if the economy has a stratospheric rebound.
The Bank of England slashed interest rates, which have already been low since the global financial crisis, to 0.1 per cent
About one in eight savings accounts now are giving interest rates of 0.1 per cent or less. Even with better rates, this could be a devastating year for many savers, who could lose a vital few quid they may need to pay the gas or electric.
Economic downturns usually motivate people to set more money aside though. That happened in 2010, soon after the GFC, when the UK savings ratio hit 12.4 per cent. Early signs show that consumers are replicating this more prudish behaviour.
When normality returns though, the savings rate could just as easily fall back, as it did from 2016 onwards when it sunk below six per cent. It will heavily depend on how much caution British savers have when the revival is in full swing.
4) New car sales fell 97.3 per cent last month
Car showrooms have stayed empty as the automotive industry registers its biggest monthly sales reduction in history. The new Mercedes you were hoping to buy has remained quietly on display like a Tate Gallery painting.
Mike Hawes, the Chief Executive of the car trade body SMMT, recently said that ‘a package of measures’ is needed to bring the industry back to rude health, both from the demand and the supply sides.
‘Safely restarting this most critical sector and revitalising what will, inevitably, be subdued demand will be key to unlocking manufacturing and accelerating the UK’s economic regeneration,’ he stated.
Car showrooms have stayed empty as the automotive industry registers its largest monthly sales decline in history
Multiple big problems were affecting the sector before the pandemic struck the UK though. Brexit, factory closures and the growing unpopularity of diesel cars all combined to create a market that was resting on relatively weak foundations.
The easing of lockdown restrictions, as well as the restart of the tourism industry, will inevitably make people want to buy more cars, and bring factories in Sunderland, Merseyside, and Ellesmere Port roaring back to life.
But a bad post-Brexit trade deal with the European Union that hampers the recruitment of employees from foreign countries, and exacerbates supply chain issues that Covid-19 is worsening could cause the British motor industry irreparable harm.
5) Property transactions expected to fall 38 per cent in 2020
Prospective buyers of new properties usually like to step inside a house to gauge whether they feel the place is right for them before deciding whether to purchase it.
Not many customers buy on digital viewings alone. So, it likely comes as little surprise that housing sales have dwindled sharply. Estate agency Knight Frank estimates that half a million fewer dwellings will be bought this year, a decline of 38 per cent.
There are also fewer houses being erected as many of Britain’s largest housebuilders, including Barratt Developments and Persimmon, have temporarily halted construction.
The sector is starting to get back to work, partly due to new Site Operating Procedures (SOPs) that regulate building sites. However, these guidelines mean some work cannot get restarted, while other jobs will be finished late.
Home sellers may also have to cut their selling prices due to the enormous drop in demand, which will be bad for estate agents. Knight Frank is calling for a stamp duty holiday to help mitigate the crisis engulfing the sector.
Falling prices will nonetheless be extremely good for wannabe homeowners, whose dream of having their own two-up two-down to raise a family may be a few steps closer.
This might just be one of the few silver linings to arise from this global catastrophe.
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