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How Brexit is already taking its toll on the U.K. economy

Prime Minister Boris Johnson recently qualified as ‘teething problems’ the many incidents and trade disruptions triggered by the start of Brexit.

With disruptions at European borders and supply chains perturbed by new tariffs, the U.K. economy has begun to show the negative economic impact of leaving Europe’s single market and customs union at the beginning of the year, several indicators show.

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  • Gita Gopinath, the chief economist of the International Monetary Fund, said this week as she was presenting the organization’s new economic forecast, that Brexit would shrink the U.K. economy “by about 1%” this quarter.
  • It was the only economy whose performance in 2020 was downgraded by the IMF, which estimates the country’s gross domestic product fell 10% last year.
  • Surveys by data company IHS Markit show that U.K. manufacturers and service providers are reporting the most severe disruptions of their supply chains, which is “almost exclusively linked to both Brexit disruption and a severe lack of international shipping availability.”
  • Freight volumes between the U.K. and the rest of Europe were down 38% in the third week of January compared with last year.
  • Paperwork, higher costs and compliance delays are severely affecting the traffic of goods on the U.K.-European Union routes, but they have an even more severe impact on trade between Britain and Northern Ireland, which remains in the single market.
  • The Office for Budget Responsibility, the official fiscal watchdog, predicted back in November that Brexit would shrink the U.K. economy by 4% in the long run with a free trade agreement such as the one that was signed between the two sides just before Christmas.

The outlook: Prime Minister Boris Johnson recently qualified as “teething problems” the many incidents and trade disruptions triggered by the start of Brexit. But from British fishermen to City of London finance professionals, many rather expect the government to act to try soften the blow.

The massive economic hit triggered by the COVID-19 pandemic may help hide the detrimental Brexit impact to the general population in the first half of the year. But it is hard to see how the government will be able to mitigate the consequences of being an outsider to the single market without taking steps back toward the EU and opening further discussions.

By Pierre Briançon

Source: Market Watch

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UK could avoid double-dip recession after resilient November

The UK economy looks likely to avoid a double-dip recession thanks to a better-than-predicted performance in November 2020, according to the EY Item Club.

The economy contracted just 2.6 per cent in November, despite the impact of a month-long England-wide lockdown and other restrictions across the UK.

As a result, it is expected the economy will have had a flat performance in the final quarter of 2020.

Although Covid-19 restrictions are expected to cause a three to four per cent contraction in the first quarter of 2021, the absence of a contraction in Q4 2020 means the UK could avoid its first double-dip recession since the 1970s, EY said.

EY estimated the UK economy shrank by a record 10.1 per cent in 2020 – an improvement on its December forecast of an 11.6 per cent contraction.

Howard Archer, chief economic advisor to the EY Item Club, said the UK economy had demonstrated resilience, and the impact of recent lockdowns had been nowhere near what it was last April.

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“Over the course of 2020, the economy has become quicker to adapt to new Covid-19 restrictions and while new restrictions may still cause disruption, lessons learned from previous lockdowns are rapidly put into place,” he said.

Archer said the prospect for recovery looked bright, adding: “The combination of vaccines, a UK-EU trade deal and previous lockdown experience means there’s much less uncertainty out there. Excluding the first quarter, the UK is looking at two years of strong growth.”

Unemployment to peak

EY’s Item Club said unemployment was likely to peak at seven per cent in mid-2021, before falling towards the end of the year.

Archer continued: “Seven per cent unemployment is high compared to recent years, but it’s not on the same scale as what was seen during the 1980s and it’s much lower than what was forecast at the outset of the pandemic.

“Government programmes, such as the furlough scheme, have helped keep job losses down so far. A lower unemployment peak means less long-term scarring for the economy.”

Elsewhere business investment is expected to improve in 2021 and then accelerate in 2022 as confidence is lifted by a firmer and more settled business environment.

EY forecasted business investment to expect 14.2 per cent in 2022 following a 1.8 per cent increased in 2021.

By Hannah Godfrey

Source: City AM

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‘UK unemployment figures are missing at least 300,000 people’

Official unemployment figures are missing hundreds of thousands of people, according to a study backed by former Prime Minister Gordon Brown.

An analysis by the Alliance for Full Employment (AFFE), called The Ongoing Wave, has urged a review of official measures of employment and unemployment, as new jobless figures are published this week.

The study claimed that at least 300,000 people were being missed because of the way data was collected and that this could lead to chancellor Rishi Sunak failing to meet the UK’s true needs with the rescue packages for the UK economy being drawn up.

Official figures suggest unemployment in the UK stands at about 1.7 million, about 4.9% of the working population. However, tax records and benefit claims appear to indicate the actual figure could be more than 2 million and likely to rise to 3.5 million later this year, the study claims.

Brown warned that the gap between the official figures and reality would have “devastating real-world consequences” and was a huge error.

He said the government was “spending too little this year on employment programmes like Restart and Kickstart for the young and on encouraging firms to take on apprentices and deliver traineeships. This new evidence means government must launch a far more ambitious and extensive job-creation programme to avert an unemployment tsunami.”

The AFFE said the pandemic had rendered the Office for National Statistics (ONS) conceptual definition and method of measuring unemployment ineffective and added that the figures “do not currently provide a reliable guide for economic assessment of developments in the labour market and policy”.

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The official figure for unemployment is based on the Labour Force Survey conducted by the ONS.

The analysis highlighted PAYE tax records that counted the number of paid employees, revealing that the number of paid jobs was now 785,000 lower than the official employment figure.

It claimed tax details showed that just under 300,000 jobs in hospitality, 160,000 in wholesale and retail, and 89,000 in arts, entertainment and recreation were not accounted for in official figures. The departure of foreign nationals who had lost work and were leaving the country could not account for the loss in roles, said the study.

According to the AFFE, the Workforce Jobs (WFJ) Business Survey data released in December covering September 2020 and earlier periods showed a fall in the number of employee jobs of 677,000 between March 2020 and September 2020. This, it said, implied unemployment of 6%.

Workers with no qualifications were over twice as likely to work in a shutdown sector than those with a degree level qualification, stated the study. Workers aged under 30 were over twice as likely to work in a ‘shutdown sector’ than those aged 30 or over.

A fifth of women (20.3%) worked in a shutdown sector, compared with 14.7% of men. “As worryingly – and even before the Brexit effect – the UK manufacturing sector appears to have lost almost 5% of its workforce according to PAYE data,” said the study.

The report stated that plans to cut universal credit should be reversed and the Kickstart programme designed to help young people find work needed to be expanded.

The ONS said: “The pandemic has brought unprecedented challenges of measurement, but the ONS remains confident that the key headline rates we report in our labour market statistics release provide reliable and timely insight on what is happening in the economy.

“In collaboration with HM Revenue and Customs, we have improved the timeliness and the level of detail of data published from the PAYE Real Time Information system, as the report notes, and are widening what we publish from this source. It is only because the Office for National Statistics publishes a wide range of labour market measures that the analysis in this report is possible and, as the report also notes, we have ourselves drawn attention to some of the differences between these measures.”

By Adam McCulloch

Source: Personnel Today

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BoE economist predicts UK economy set to recover at rate of knots

The Bank of England’s chief economist expects Britain’s economy to begin to recover “at a rate of knots” from the second quarter of this year as vaccines against the coronavirus are deployed.

Andy Haldane said that the huge economic shock caused by the first lockdown in March and April last year, when output fell 25 per cent, was likely to prove more transient than the 2008-09 global financial crisis that generated a large overhang of bad debts.

“If we get the recovery that I expect to start coming on stream, probably at a rate of knots from the second quarter, that will hopefully . . . improve the prospects of re-employment,” Mr Haldane told an online event for students and alumni of Lady Margaret Hall, a University of Oxford college.

Many economists believe that Britain’s economy is on course to shrink during the current quarter as the government battles a new wave of the coronavirus with tougher lockdown measures. Mr Haldane played down the risk of a jump in unemployment after government furlough payments to companies are due to end in April.

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If the economy was within 5 to 10 per cent of its pre-pandemic size there should be no further job losses beyond the roughly one million people who had already lost work, he said. The last official data, for November, showed that output was 8.5 per cent below its pre-pandemic level.

The Bank has doubled its bond purchase target to £895 billion since the start of the pandemic, and Mr Haldane said he was concerned that many investors thought the central bank had done this primarily to finance government borrowing. He said the scale of bond purchases reflected the economic hit from the coronavirus outbreak and that he was committed to tightening monetary policy as required to meet the Bank’s 2 per cent inflation target.

Britain is distributing vaccines faster than almost anywhere else in the world and the government hopes to be able to ease restrictions significantly by Easter and to reduce costly economic support measures.

Source: Business Matters

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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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STAY POSITIVE

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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UK economy shrank in November as new lockdown hit

UK economy shrank by 2.6% in November, the first monthly fall in output since the country was under its initial COVID lockdown last April as new restrictions were imposed to slow the spread of the disease. However, the scale of the decline was much smaller than most analysts expected – a Reuters poll had pointed to a 5.7% contraction.

Britain’s economy is now 8.5% smaller than it was before the start of the coronavirus pandemic in February. “Many businesses adjusted to the new working conditions during the pandemic … while schools also stayed open, meaning the impact on the economy was significantly smaller in November than during the first lockdown,” ONS statistician Darren Morgan said.

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The Bank of England had estimated Britain’s economy would shrink by just over 1% over the final three months of 2020. With a new lockdown in place since January the country is still at risk of falling into a double-dip recession.

The BoE ramped up its bond-buying programme to almost 900 billion pounds ($1.23 trillion) in November and Governor Andrew Bailey said this week that it was too soon to say if further stimulus would be needed. Friday’s data showed Britain’s economy in November was 8.9% smaller than a year earlier, a smaller drop than the 12.1% fall forecast in a Reuters poll. In October the economy had been 6.8% smaller than a year before.

At its lowest point in April, when many businesses closed temporarily, output was a record 25% below its year-ago level. November’s downturn was led by the services sector, where output fell 3.4% from October as pubs, restaurants, non-essential shops and many other consumer services businesses had to shut as part of a four-week lockdown in England and similar measures in other parts of the United Kingdom.

Source: The Economic Times

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Poorest Struggle As Coronavirus Impacts UK Economy

A report published by the leading anti-poverty charity Joseph Rowntree Foundation said the economic crisis brought by the coronavirus pandemic will make it extremely hard for the poorest families to recover unless the UK government takes action to tackle the crisis.

A report published by the leading anti-poverty charity Joseph Rowntree Foundation said the economic crisis brought by the coronavirus pandemic will make it extremely hard for the poorest families to recover unless the UK government takes action to tackle the crisis.

The report also found that 40 percent of minimum-wage workers face a ”high or very high risk” of losing their job.

A food bank in East London has been struggling to cope with the number of people asking for food.

Community worker Abdi Hassan told British broadcaster Sky News that the food bank receives more and more help requests for mental health support as well.

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Wheelchair user Piers Wilkinson has lost his job during the summer due to the coronavirus pandemic.

He is now a disability activist and said that despite the help received by professionals to find a new job, he is now drowning in debt.

Helen Barnard, a member of Joseph Rowntree Foundation, said the charity found out that the majority of people who were losing their jobs during the pandemic, were those who were already struggling financially.

Earlier this week, a mother shared on social media an image of a poor free school meal delivered by a food company.

The image went viral and showed poor quality and low-value food, which was supposed to feed children who were homeschooling because of the lockdown.

Health Secretary Matt Hancock told Sky on Wednesday morning the food company has ”apologized” for the incident and will make sure people were delivered the high-standard food they deserve.

Source: Republic World

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Sunak: UK economy will get worse before it gets better

RISHI Sunak has warned that the UK economy will “get worse before it gets better” given the latest Covid-19 lockdown as he came under fire over post-Brexit trading rules which had brought the export of fish and seafood to a “grinding halt”.

In a Commons update on the economy, the Chancellor cautioned the “road ahead will be tough” for the UK in its recovery from the pandemic, telling Conservative colleagues he would “bear in mind” their calls to extend business rate relief and provide further support for the hospitality sector at the Budget in March.

The told MPs: “Even with the significant economic support we’ve provided, over 800,000 people have lost their job since February.

“And while the new national restrictions are necessary to control the spread of the virus, they will have a further significant economic impact. We should expect the economy to get worse before it gets better.”

Mr Sunak defended the Government’s “comprehensive economic plan”, noting the fiscal stimulus amounted to more than £280 billion.

Anneliese Dodds, his Labour Shadow, said the Chancellor “was nowhere to be seen” when Boris Johnson announced the latest lockdown and that in his economic update he appeared to be “out of ideas, urging us to look towards the sunny uplands but providing nothing new”.

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Alison Thewliss for the SNP denounced the “shambolic” Conservative Government and upbraided Mr Sunak for not honouring the Treasury commitment to give the Scottish Government an extra £375 million as a Barnett consequential to last week’s multi-billion pound aid package for business across the UK.

The Glasgow MP asked why were “Scotland’s businesses not entitled to the many thousands of pounds English businesses will receive”.

But the Chancellor hit back, pointing out that the UK Government had “front-loaded” funding for Scotland at the request of Edinburgh in a so-called £8.6 billion Barnett Guarantee to help it plan its strategy to fight the coronavirus.

“The point about doing that is to provide upfront certainty but it is also right to keep a tally on the various announcements as they are made about the additional sums they do trigger for Barnett against that guarantee and over time that guarantee will be adjusted.”

Downing St has pointed out that on Christmas Eve the Treasury handed over £400m to the Scottish Government as more front-loaded funding.

Mr Sunak questioned whether or not Edinburgh was promising a similar grant of up to £9,000 for individual businesses. The Scottish Government was asked for a response on this point.

Meanwhile, Alistair Carmichael, the MP for Orkney and Shetland, took the Chancellor to task over his assertion that the UK-EU trade deal meant businesses could do things differently and better, saying they would have been “heard with total incredulity by anyone whose business involves the export of seafood”.

The Liberal Democrat MP denounced the new procedures for export as a “bureaucratic mess” that had brought export trade to a “grinding halt”.

The former Scottish Secretary explained: “One local fish trader told me this morning that a single consignment now has to go with no fewer than 17 different attachments and another told me on Friday that he had lost £50,000 on a single consignment that he had been unable to export.”

Mr Sunak responded by insisting the deal provided UK firms with tariff-free access to European markets and pointed out how “over time” the Government was looking to “streamline and improve all our processes,” having invested a huge amount of resource in IT systems and support for businesses which needed help filling out “various customs forms and meet[ing] new procedures”.

By Michael Settle

Source: Herald Scotland

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250,000 small UK firms seen closing without more financial aid

An industry group says at least 250,000 small firms in the United Kingdom could close unless the government gives them more financial help.

The Federation of Small Businesses’s (FSB’s) warning on Monday comes after authorities imposed renewed lockdown measures to contain a highly infectious strain of coronavirus and as the UK heads towards its second recession in as many years.

Lobby groups say the 4.6 billion pounds ($6.2bn) announced by Chancellor Rishi Sunak as emergency aid at the start of the lockdown is not enough.

“The development of business support measures has not kept pace with intensifying restrictions,” said FSB Chairman Mike Cherry in a statement. “We risk losing hundreds of thousands of great, ultimately viable small businesses this year, at huge cost to local communities and individual livelihoods.”

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The FSB’s quarterly survey, the Small Business Index (SBI), found confidence at the second-lowest level in its 10-year history. Slightly less than 5 percent of the 1,400 firms questioned expect to close.

Government data show that there are about 5.9 million small businesses in the UK employing about 16.8 million people.

The SBI confidence measure is at minus 49.3, down 27 points year-on-year, the second-lowest in SBI history, after the one recorded in March 2020. Of those surveyed, 80 percent said they do not expect their performance to improve over the next three months; 23 percent said they have laid off staff over the last quarter, up from 13 percent at the beginning of last year; and 14 percent said they will be forced to cut numbers over the next three months.

Moreover, the proportion of small businesses that expect profits to shrink in the upcoming quarter has shot up from 38 percent a year ago to 58 percent now, an all-time high.

The UK is in lockdown until at least mid-February, prompting Bloomberg Economics to predict a 4.5 percent contraction this quarter. Output probably fell in the final three months of 2020, capping the worst year for the economy in three centuries.

“This government can stem losses and protect the businesses of the future, but only if it acts now,” the FSB’s Cherry said, adding that the support mechanisms at the start of the first national lockdown were “an exceptionally good starting point” while the measures announced for this second lockdown are “a whimper”.

Source: Aljazeera

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How UK unemployment rates soared in 2020

THE UK’s unemployment rate soared during 2020 as some of the country’s largest businesses were forced to lay off hundreds of thousands of staff, with some of the biggest casualties in the retail, hospitality and travel sectors.

This year the PA news agency tracked nearly 280,000 announced redundancies or jobs that were put at risk since March 23, when the first lockdown started.

It is a clear demonstration of the cost to people of the economic chaos caused by coronavirus.

Some of the cuts, including 5,500 at Cineworld, are likely to be temporary, but the PA figures also hide a large number of job losses, many among smaller companies.

The Office for National Statistics (ONS) said this month that the number of employees on payrolls had fallen by 819,000, most of which were at the beginning of the pandemic.

According to PA’s analysis, June was the worst month, with nearly 75,000 redundancies or possible job losses announced. However, this included HSBC and BP, whose plans for 35,000 and 10,000 possible redundancies were global, and not just limited to UK jobs.

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The fewest number of job losses announced in a full month was in April, shortly after lockdown started on March 23.

Retail jobs were the hardest hit, according to PA’s analysis, with more than 85,000 potential redundancies. Hospitality and travel companies both announced more than 42,000 losses.

The Bank of England said in November that it expected unemployment to peak at 7.75% next year, far ahead of the current 4.9%.

The Government hoped its furlough plan would save jobs, and has paid £46 billion to cover up to 80% of the salaries of 9.9 million people at some point. But between August and October, as the scheme was being phased out, redundancies reached a record high, at 370,000 in that quarter alone.

The furlough scheme, which was meant to come to an end in the autumn, was extended until April as more restrictions hit the economy.

A Government spokeswoman said: “We have put in place one of the world’s most comprehensive economic responses, spending over £280 billion to protect jobs, incomes, and business throughout the pandemic.

“Our Plan for Jobs continues to support people of all ages to get back on the jobs ladder, levelling up the nation as we build back better. We’re doubling the number of Work Coaches across our jobcentres ensuring those in need have access to bespoke support, creating hundreds of thousands of opportunities for young people through our Kickstart Scheme and our SWAPs (sector-based work academy programmes) are helping people retrain for new industries.”

By Richard Browne

Source: Bridgwater Mercury

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