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Reopening of UK economy to be delayed for four weeks

The full reopening of Britain’s economy has been postponed for at least four weeks due to the spread of the so-called Delta variant of Covid-19 first detected in India.

Prime Minister Boris Johnson made the announcement after the close of trading on Monday.

Restrictions on activity in pubs and nightlife venues or the rules on the use of facemasks had been due to be lifted on 21 June.

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Johnson nevertheless sounded a hopeful note, saying: “As things stand, and on the evidence that I can see right now. I’m confident that we will not need more than four weeks.”

He was speaking just after fresh figures from Public Health England revealed that the number of infections from the Delta variant had more than doubled over just the past week to 42,323.

By Alexander Bueso

Source: ShareCast

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UK service sector grows at fastest rate for seven years

The UK service sector surged in April, buoyed by the loosening of lockdown restrictions and growing consumer confidence, data published on Thursday showed.

The IHS Markit/CIPS UK services PMI business activity index reached 61.0 in April, up from 56.3 in March and the highest since October 2013. It was also ahead of both consensus and the flash estimate of 60.1.

The composite PMI output index – a weighted average of the comparable manufacturing and services indices – also rose, to 60.7 from 56.4 a month earlier. The April figure was above both analyst forecasts and the flash reading of 60.0.

In the services sector, order volumes increased for the second consecutive month and was the fastest rate of expansion since December 2013. Job creation also improved, with the sector recording the fastest increase in employment for five and half years.

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Tim Moore, economics director at IHS Markit, said: “A surge of pent-up demand has started to flow through the UK economy following the loosening of pandemic restrictions.

“The roadmap for reopening leisure, hospitality and other customer-facing activities resulted in a sharp increase in forward bookings and new project starts. If the rebound in order books continues along its recent trajectory during the rest of the second quarter, then output growth looks very likely to surpass the survey record high seen back in April 1997.”

Duncan Brook, group director at the Chartered Institute of Procurement & Supply, said: “This positive trend in recovery is likely to accelerate in the coming months, but stretched supply chains remain a sticking point, along with inflation potentially biting chunks out of wages and business margins, threatening to put a brake on this fast track to economic normality.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The economy has a spring in its step following the partial reopening of consumer services businesses as well as shops on 12 April.

“As things stand, we think GDP rose by about 2% month-to-month in both March and April, leaving it only about 4.5% below its pre-Covid level last month.

“Services businesses are hiking prices as they reopen. Nonetheless, we are not convinced that large price rises will become the norm. Labour market slack remains ample enough for now to keep a tight lid on wages. [It] will also rise again after the furlough scheme is would up, releasing people currently tied to their employers but who have little prospect of being re-employed.

“Our view remains, therefore, that the MPC will be able to look through the approaching period of modestly above-target CPI inflation and hold back from increasing bank rate until the second half of 2023.”

By Abigail Townsend

Source: Sharecast

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UK economy to take at least two years to return to pre-COVID-19 level

It will take more than two years for Britain’s economy to recover to its pre-COVID-19 level, a Reuters poll found, but the Bank of England was still expected to keep rates steady until at least 2024 and to avoid negative borrowing costs.

The British government has been ramping up its coronavirus vaccination programme in one of the hardest hit countries by the pandemic but another national lockdown, which is hurting the dominant service industry the most, means the economy will shrink again this quarter.

Median forecasts in the Jan. 11-14 poll of over 70 economists said the economy would contract 1.4% this quarter after shrinking 2.0% in the final three months of 2020. In December, before the new national lockdown was announced, the economy was predicted to grow 1.7% this quarter.

“While we expect strict lockdowns to trigger a 3% fall in UK GDP in the first quarter, the more optimistic outlook for vaccinations means a sustained recovery could start in the spring,” said James Smith at ING.

Prime Minister Boris Johnson said on Wednesday, with daily coronavirus deaths at record levels, Britain was targeting a 24-hour, 7-day a week vaccination programme as soon as possible as it seeks to inoculate 15 million people by mid-February.

“Realistically that could enable a very gradual removal of restrictions from March, and more meaningfully beyond Easter,” Smith said.

So next quarter the economy was expected to expand 3.9% and then grow 2.5% the quarter after, the poll showed. For 2021 as a whole growth was pegged at 4.9% and for 2022 it was 5.3%

When asked how long it would take for the economy to recover to its pre-COVID-19 level 14 of 23 respondents to an additional question said it would be at least two years. Nine said within two years and none said within a year.

“Even though the UK is among the first in class with the rollout of the vaccines, we think the economic recovery will lag most of its European peers as the UK is in a relatively weak position due to the simultaneous shock of Brexit,” said Stefan Koopman at Rabobank.

Johnson reached an eleventh-hour deal with the EU on Dec. 24, averting tariffs on goods trade with the EU. However, trade between the two economic areas will still face significant extra paperwork.

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Bank of England Governor Andrew Bailey said on Tuesday Britain’s economy was facing its “darkest hour” but played down suggestions cutting interest rates below zero would be a straightforward way to boost growth.

Fellow BoE rate-setter Silvana Tenreyro on Monday outlined possible benefits from such a policy and Deputy Governor Ben Broadbent said on Tuesday the key judgment would be whether negative rates risked lowering lending volumes by reducing banks’ profitability.

Sixteen respondents to an additional question said the Bank was unlikely or very unlikely to take borrowing costs into negative territory and eight said it was likely or very likely. In an October poll only five said the Bank would go sub-zero.

Only three of 57 economists expected a cut at the Bank’s Feb. 4 meeting and medians in the poll suggested Bank Rate wouldn’t move from its record low of 0.1% until 2024 at the earliest.

However, six of the near 60 respondents expected negative rates by the end of 2021.

“As the experience from other central banks has shown, negative interest rates have very limited effects while at the same time producing large-scale side effects,” said Martin Weder at ZKB.

“The BoE is unlikely to go down this path unless it is forced to do so in case of another deep downturn.”

Reporting by Jonathan Cable

Source: UK Reuters

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ONS shows UK economy slowing, led by decline in hospitality

The UK economy recorded 15% growth in Q3 as lockdown restrictions were eased through the summer, but any real recovery has slowed and this slow down is led by the Covid-19 impact on hospitality.

Data from the ONS shows that national output expanded by just 1.1% in September, the third month of Q3 prior to the regional and now national lockdowns being introduced.

The ONS data did show the UK economy expanding for five consecutive months, most recently that momentum of recovery had decelerated. Record growth in Q3 followed a record drop of 19.8% in Q2 and a 2.5% drop in Q1.

The services sector, that includes hospitality has sustained the worst impact and is now 8.8% lower than it was before the first lockdown in March was imposed.

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The Chancellor of the Exchequer, Rishi Sunak was somewhat optimistic in his reflections saying: “Today’s figures show that our economy was recovering over the summer, but started to slow going into autumn. The steps we’ve had to take since to halt the spread of the virus mean growth has likely slowed further since then.

“But there are reasons to be cautiously optimistic on the health side – including promising news on tests and vaccines. My economic priority continues to be jobs – that’s why we extended furlough through to March and I welcome the news today that nearly 20,000 new roles for young people have been created through our Kickstart scheme.

“There are still hard times ahead, but we will continue to support people through this and ensure nobody is left without hope or opportunity.”

There is no doubt that the government’s economic aid to hospitality businesses to date has been significant. But, to avoid further business failures and unemployment figures unseen in a generation, more intervention is needed, and very soon.

Source: Hospitality & Catering News

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