Closing summary
- We started off the day with news that UK GDP slowed significantly in August, rising just 2.1% month-on-month, far below City forecasts for a 4.4% reading
- However, the news barely moved the pound, as forex investors have been more pre-occupied with Brexit talks and prospects of further Covid stimulus in the US
- Speaking of Brexit, UK City regulators penned letters to banking CEOs warning them that there could be market instability if firms don’t properly prepare for the end of the Brexit transition period on 31 December
- And in further bad news for the high street, Edinburgh Woollen Mill, the owner of Jaeger, Peacocks and Austin Reed, is teetering on the brink of administration putting up to 24,000 of jobs at risk
- But for companies hit by local lockdowns, Chancellor Rishi Sunak announced an expanded furlough scheme. The UK government will cover two thirds of employees’ salaries if businesses are forced to shut down due to local or national coronavirus restrictions over the next six months, the Treasury confirmed.
- European were were broadly higher on the session, and Rolls Royce shares were on track for their strongest weekly gains since 1987 as bargain hunters piled in ahead of an expected £2bn cash call.
- US stocks were also higher on stimulus hopes.
That’s all from the business live blog today. Thanks for tuning in and have a good weekend. -KM
Follow our UK coronavirus live blog for further analysis and reaction to the Chancellor’s expanded furlough scheme:
The government will cover two-thirds of workers’ wages at businesses forced to close during new coronavirus lockdowns, the chancellor has announced.
Coming as ministers scramble to contain the economic fallout from tough new lockdown measures planned for the north of England, Rishi Sunak said the government would subsidise pay by providing grants to companies forced to close their doors – likely to be led by pubs, bars and restaurants – due to fresh controls being put in place.
Under the expansion, firms whose premises are legally required to shut for some period over winter as part of local or national restrictions can receive grants to pay up to 67% of employees’ salaries.
It comes just two weeks after the chancellor announced a replacement for furlough – the job support scheme – in his winter economy plan. With just weeks left until the old furlough programme closes at the end of October, the expansion of the new job support scheme effectively replaces it under a new name with some differences.
The shift in government policy also comes as ministers prepare tougher new local restrictions for parts of the country where Covid-19 cases have dramatically increased in recent weeks.
Official figures indicate more than one in 10 workers in Britain – almost 3 million people – were still furloughed in early September.
Updated
BREAKING: UK confirms expanded job scheme for firms hit by lockdowns
The UK government will cover two thirds of employees’ salaries if businesses are forced to shut down due to local or national coronavirus restrictions over the next six months, the Treasury has confirmed.
That will mean the government will pay 67% of worker salaries, up to a maximum of £2,100 a month. Employers will not have to contribute towards wages and will only asked to cover national insurance and pension contributions.
The scheme - which requires employees to pay staff upfront and submit claims afterwards - will open for six months on 1 November, but will be reviewed in January.
The government is also increasing cash grants available to businesses in England shut in local lockdowns, to help cover fixed costs. Those grants will be worth up to £3,000 per month payable every two weeks - compared to the previous grants which were worth up to £1,500 payable every three weeks.
Chancellor Rishi Sunak, said:
Throughout the crisis the driving force of our economic policy has not changed.
I have always said that we will do whatever is necessary to protect jobs and livelihoods as the situation evolves.
The expansion of the Job Support Scheme will provide a safety net for businesses across the UK who are required to temporarily close their doors, giving them the right support at the right time.
Wall Street is open for trading and stocks are climbing. Here’s how the major indices are looking:
- S&P 500 is up 0.49% or 16.79 points at 3,463.62
- Dow is up 0.42% or 118.02 points at 28,543.53
- Nasdaq is up 0.59% or 67.04 points at 11,488.02
Rolls Royce shares on track for best weekly rise since 1987
Shares for aircraft engine maker Rolls Royce are on track for their strongest weekly rise since the company listed in 1987.
Rolls shares were up as much as 17% this morning, having doubled in the past week to trade as high as 228.9p each. While it’s a fraction of the pre-Covid share price of 690p, it’s a significant surge for the engineering giant’s stock.
Investors have been piling in since Rolls Royce announced it was looking to raise a total of £5bn, including £2bn from shareholders, to shore up its balance sheet last week. The move attracted bargain hunters, who no longer think the company is at risk of going under.
Rolls Royce shares are currently up 15% on the session, and 98% since last Friday.
We’re less than an hour away from the US market open and futures are pointing to a positive start on Wall Street as investors hold out hope for another Covid stimulus package:
- S&P futures are up 0.47%
- Dow futures are up 0.44%
- Nasdaq futures are up 0.43%
There are a couple indications of a stimulus package on the horizon:
First, Democratic presidential candidate Joe Biden’s widening lead on Donald Trump ahead of the 3 November election has raised expectations of a large economic aid package.
Secondly, reports suggest US president Donald Trump has u-turned on his previous stance and said negotiations about some sort of stimulus package are back on track.
David Madden, a market analyst at CMC Markets UK, explains:
The prospect of some form of stimulus in the US is trumping the health crisis, even though a political settlement is far from agreed upon.
Things are still up in the air when it comes to the relief package in the US, as President Trump is keen for smaller individual relief schemes, while Nancy Pelosi, the House Speaker, is driving for a large all-or-nothing package.
Pelosi said she is hopeful that a deal can be struck.
London-listed security giant G4S has confirmed that US-based Allied Universal Security Services has expressed interest in a potential takeover.
It would mean launching a rival bid for the firm, which has been the target of a hostile takeover attempt by Canadian firm GardaWorld.
G4S reiterated that it strongly advises shareholders against accepting GardaWorld’s “unattractive and highly opportunistic offer” of 190p per share.
G4S shares are up 6% on the news.
Here is our full story on the Edinburgh Woollen Mill Group administration:
Edinburgh Woollen Mill Group, the owner of Jaeger, Peacocks and Austin Reed, is teetering on the brink of administration putting up to 24,000 jobs at risk, my colleague Sarah Butler writes.
The group, controlled by entrepreneur Philip Day, has filed a notice of intention to appoint administrators, a legal document which provides protection from creditors for 10 days. The group had been seeking a buyer and will spend the next few weeks considering its options.
Edinburgh Woollen Mill (EWM) said it was “responding to the harsh trading conditions caused by the impact of the Covid-19 pandemic and a recent reduction in its credit insurance”.
It said it had received a number of expressions of interest for parts of the group in recent weeks and these were being assessed along with “all other options”.
However, the chief executive of EWM, Steve Simpson, said there would “inevitably be significant cuts and closures” and the group would appoint FRP Advisory as administrators to carry “necessary restructuring” of the business.
Fresh forecasts released by NIESR (the National Institute of Economic and Social Research) are slightly less pessimistic than Berenberg, but still point to an -8.5% fall in GDP for the whole of 2020.
It expects growth to come to a complete halt in September, logging a 0% monthly rise in GDP. That would mean a 15% rise for GDP in Q3.
These numbers would suggest that the UK could grow by about 15% in the third quarter of 2020. However, there is further cause for concern ahead with the likely re-imposition of #lockdown measures, the winding down of government support measures, and #Brexit uncertainty
— NIESR (@NIESRorg) October 9, 2020
2/3
BREAKING: 24,000 jobs at risk as Edinburgh Woolen Mill on brink of administration
Edinburgh Woollen Mill, the owner of Jaeger, Peacocks and Austin Reed, is teetering on the brink of administration putting up to 24,000 of jobs at risk.
The group, controlled by entrepreneur Philip Day, has filed a notice of intention to appoint administrators, a legal document which provides protection from creditors for ten days.
The group had been seeking a buyer and will spend the next few weeks considering its options.
We’ll bring you more detail as we get it.
Updated
Reflecting on today’s GDP figures, the Construction Products Association (CPA) has warned that industry growth will likely slow further without additional government support.
(Reminder: construction was one of the strongest sector August, recording a 3% rise in output, even though it was significantly lower than the 17.2% growth logged in July)
Private house building is the largest subsector and rose 12% in August month-on-month, having been buoyed by pent-up demand, which has boosted house prices and lifted forward sales. It’s been helped by the government’s stamp duty holiday and deadline extension for Help to Buy.
Commercial output fell 2%, which the CPA says was affected by London-based projects.
Interestingly, almost one-third (31%) of commercial construction is in London alone where construction work involves many trades in tight spaces, so social distancing and other safety measures are still hindering productivity on site. As a result of this, commercial towers in London that pre-Covid-19 were anticipated to finish in the Summer are now likely to finish in 2020 Q4 or 2021 Q1. Along with this hindrance to productivity, there remains the question of where demand and contracts for new offices, retail and leisure will come from given increased working from home and the risky, high upfront nature of investment required for commercial builds, which has a long-term rate of return.
Infrastructure, meanwhile, rose 2.7%, thanks to a strong pipeline of road, rail, water and energy projects that by their very large-scale nature haven’t been hard-hit by social distancing rules.
The CPA said:
Overall, total construction output continues grow but it is increasingly becoming reliant on government either directly through spending in infrastructure or indirectly through policy stimulus to boost housing.
This places an extra responsibility on government to ensure it comes through with activity on the ground and not just announcements if we are to see construction recovery to continue and not stall in the next 12 months.
The London Stock Exchange Group has agreed to sell the Milan stock exchange to the rival group Euronext for €4.3bn (£3.9bn) in cash, clearing the way for the LSE’s purchase of the financial data provider Refinitiv.
The LSE and Euronext, which owns several European stock exchanges including the Paris bourse, began exclusive talks over the Borsa Italiana deal in September.
The Amsterdam-based Euronext fought off competition from other stock exchange operators including Germany’s Deutsche Börse and Switzerland’s Six for the Italian firm.
The LSE believes selling Borsa Italiana will help it to gain regulatory approval from the European commission for its $27bn (£21bn) deal to buy Refinitiv, whose Eikon terminals are found on trading floors and compete against those supplied by Bloomberg.
The LSE’s chief executive, David Schwimmer, said the group believes the sale of Borsa Italiana “will contribute significantly to addressing the EU’s competition concerns” over its Refinitiv purchase.
“We continue to make good progress on the highly attractive Refinitiv transaction and we are pleased to have reached this important milestone,” Schwimmer said.
Refinitiv is owned by a consortium including Blackstone and Thomson Reuters, the owner of the Reuters news service.
The weaker pound is helping prop up the FTSE 100, which is now trading higher by around 0.7%.
The blue chip index is now above the 6000-point mark for the first time since mid-September at 6019.
Engineering giant Rolls-Royce is leading the pack, up by 17%. There’s growing chatter over a potential takeover, a week after the company said it would look to raise £2bn from shareholders to shore up its finances.
David Madden Market Analyst at CMC Markets UK, said:
Rolls Royce shares are driving higher again and the stock is up 16% this morning, so from the lows of last Friday, it is up 116%.
There is increasing speculation about a takeover bid but there is nothing official to back that up. A huge move in one week without any obvious news behind it seems odd.
Regulators warn banking CEOs to prepare for end of Brexit transition period
Back to Brexit, UK City regulators have penned letters to banking CEOs warning them that there could be market instability if firms don’t properly prepare for the end of the Brexit transition period on 31 December.
In the letter, the FCA and PRA warn:
Financial stability is not the same as market stability and some market volatility and disruption to financial services, particularly to EU-based clients, could arise.
Financial institutions are continuing to make preparations and engage with clients and customers to minimise any disruption and it is important that they continue to do so.
Regulators go on to list issues that banks should prioritise, including:
- Transferring/repapering wholesale banking business and contracts
- Sorting out cross-border use of personal data
- Making sure they are able to manage cross-border payments
- Ability to service retail banking customers abroad
You can read the letter in full here.
Updated
The August growth figures for the UK were a shock, and not in a good way.
All the ingredients seemed to be in place for another month of rapid recovery from the spring slump induced by lockdown. The number of Covid-19 cases was low, no new restrictions were put in place and the public seemed eager to spend the savings accumulated earlier in the year.
What’s more, Rishi Sunak’s July mini budget was a deliberate attempt to boost activity, not just through the “eat out to help out” scheme, but via temporary cuts in VAT and stamp duty on home purchases.
So while in normal times a 2.1% monthly increase in output would be considered spectacularly good, in the context of August 2020 it was a considerable disappointment. The economy expanded at about a third of the 6.4% it managed in July, and undershot economists’ 4.6% consensus forecast by a wide margin.
In the absence of eat out to help out, which boosted activity in the hospitality sector by more than 70% month on month, the picture in August would have been even worse. Higher spending on food and accommodation accounted for more than half of the economy’s growth.
The good news, such as it is, is that two-thirds of the ground lost between February and April has been made up in the subsequent four months.
The bad news is that the economy is still more than 9% below its February level, and at the current rate of progress it will take another two years to return to pre-crisis levels of output. And that assumes no further setbacks along the way, something only an incurable optimist would rule out.
Read more here:
Berenberg Economics has revised down their UK GDP forecasts for 2020 from -9.9% to -10.1%, following the release of the August data and the lockdown looming for northern England.
The research team, led by chief economist Holger Schmieding, explains:
Reacting to the sharp increase in the number of SARS-COV 2 infections, national and local governments across the UK are once again tightening restrictions on daily life. The rules range from limiting the number of people in a group and a 10pm curfew for pubs and restaurants across England, to the temporary closure of such places across the central belt of Scotland. Further restrictions in parts of northern England look likely in the days to come.
Amid mounting restrictions, and in line with our latest revisions to the Eurozone outlook, we downgrade our Q4 call to 2.0% qoq from 2.5% previously.
Due to the statistical overhang from the big rise during Q3, quarterly Q4 growth would be 1.7% qoq even if economic momentum stalled between September and December.
The changes to our H2 calls lower our 2020 annual projection from -9.9% to -10.1%
Sterling seems relatively unfazed by the UK GDP data, with investors appearing more concerned about the outcome of Brexit talks over the coming weeks.
Dean Turner, economist at UBS Global Wealth Management said:
When it comes to the outlook for sterling, we think that the progress on Brexit negotiations is likely to have a bigger impact on the currency in the near term. We continue to expect a deal, albeit late in the day, and expect the pound to trade a little higher against the euro and dollar following the end of transition period.”
Against the US dollar, sterling is nearly flat, trading around 1.293.
Versus the euro, the pound is down around 0.25% at 1.097.
Sounds like hopes for a V-shaped recovery are fading after August’s GDP reading.
George Brown, an economist at Investec says that the “transitory boost” from an easing of Covid restrictions in the UK have now largely faded, and that the recovery looks increasingly fragile as coronavirus cases continue to rise.
However, the impact of a looming lockdown in Northern England could be cushioned by additional fiscal support from Chancellor Rishi Sunak (expected to be announced later today). Investec says it is now revising its economic forecasts for the UK, while they wait for the government to confirm new restrictions and accompanying support packages.
Brown says:
One thing that does seem clear is that the economic recovery will no longer be firmly “V-shaped”, as a number of commentators have claimed. A further clampdown risks sending GDP into reverse, creating a wave or ripple more characteristic of a Viennetta than a letter.
The only question is: can Mr Sunak make things better?
Outside of the services sector, ONS figures show industrial production rose a mere 0.3% month-on-month in August compared to 5.2% in July.
Meanwhile, manufacturing increased 0.7% versus 6.9% a month earlier.
The strongest monthly output came from the construction sector - led by housebuilding - which rose 3% in August, though that was significantly lower than the 17.2% growth logged in July.
Full story: UK economic growth slows in August despite 'eat out to help out'
Britain’s economic recovery from the coronavirus pandemic slowed in August despite the government’s eat out to help out scheme fuelling a rise in consumer spending.
The Office for National Statistics (ONS) said gross domestic product rose by 2.1% in August compared with the previous month, falling short of expectations among City economists for a monthly growth rate of 4.6%.
It followed growth of 6.6% in July – revised down from 6.4% – 9.1% in June and 2.7% in May.
Continuing a fightback from the deepest recession in history as Britons increased their spending in hotels, cafes, restaurants and pubs, the latest snapshot comes as concerns mount over the strength of the UK’s economic fightback as the second wave of coronavirus infections spreads and the government imposes tough new restrictions on business and social life.
After staging a rapid recovery in recent months, GDP is 21.7% higher than its lowest ebb during lockdown in April, when the economy contracted by 19.5%. However, it remains 9.2% below pre-pandemic levels and could take years to recover while the virus and efforts to contain its spread continue to drag down activity.
The ONS said more than half of growth in August was fuelled by the sector of the economy that includes hotels and restaurants, as the combined impact of lockdown measures being relaxed, the eat out to help out scheme and more people taking holidays in Britain boosted consumer demand.
Analysts expect the UK economy to struggle for growth in the months ahead amid the second Covid-19 wave and as the government scales back its support for jobs by closing the furlough scheme and replacing it with a less expensive job support programme.
The UK’s dominant services sector experienced weaker growth in August, having grown just 2.4% in August compared to 5.9% in July.
Services growth is still 9.6% lower than the level in February 2020, before Covid hit the UK.
As mentioned, food and drink services were one of the brighter spots, having grown 69.7% in August. The boom in staycations - due to international travel restrictions - bolstered the accommodation industry by 76%.
Overall, 12 of the 14 services subsectors remain below their February 2020 level, and even accommodation and food services output is still lagging by around 13.7%.
For a better sense of the UK’s economic recovery from Covid, here is a chart showing how far we’ve come since April’s plunge:
Our economics correspondent Richard Partington says the government is revving up for a job support announcement today. Stay tuned.
Update to government's economic support is coming - Treasury says: "The chancellor will be setting out the next stage of the Job Support scheme later today that will protect jobs and provide a safety net for those businesses that may have to close in the coming weeks and months”
— Richard Partington (@RJPartington) October 9, 2020
European markets are open and most indices are managing to trade in positive territory:
- FTSE 100 is up 0.4%
- France’s CAC 40 is up 0.3%
- Spain’s IBEX is down 0.1%
- Italy’s FTSE MIB is roughly flat
UK chancellor Rishi Sunak has reacted to the GDP data, saying:
Today’s figures show our economy has grown for 4 consecutive months, but I know that many people are worried about the coming winter months.
Throughout this crisis, my single-focus has been jobs – protecting as many jobs as possible, and providing support for people to find other opportunities where this isn’t possible. This goal remains unchanged.
That’s why we’re investing billions to help people back to work and provide fresh opportunities to those that have sadly lost their jobs so that nobody is left without hope.
Digging further into the UK GDP data, the 2.1% rise in August marks the fourth consecutive monthly increase since GDP plunged by a record 19.5% in April.
UK GDP is now 21.7% higher than its April low.
But it’s worth noting that growth levels are still 9.2% below where they were when the Covid-19 crisis hit in February 2020.
That’s despite government efforts to bolster the UK’s lucrative services sector in August.
Looser Covid restrictions and the Eat Out to Help Out scheme meant that food and accommodation contributed 1.25 percentage points to the August GDP figure:
Updated
Introduction: Sharp slowdown as UK GDP rises just 2.1% in August
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
And importantly: happy UK GDP day. Though how happy you are about the pace of Britain’s recovery depends on how you look at the numbers.
According to the Office for National Statistics, the UK’s gross domestic product grew by 2.1% month-on-month in August. However, that’s far below City forecasts for a 4.4% reading.
It also marks a further slowdown in economic growth compared to July, when the figure came in at 6.4% (having been revised down from 6.6%).
That slowdown comes despite the government’s efforts to stimulate consumption through the Eat Out to Help Out scheme, which enticed Brits to support their local pubs and restaurants through heavily discounted meals in August.
There are now fears that the economic recovery might be running out of steam - especially as Covid cases are back on the rise.
BCC Head of Economics Suren Thiru said:
While the latest data confirms a rebound in economic activity continued into August, the sharp slowdown in growth indicates that the recovery may be running out of steam, with output still well below pre-crisis levels.
The increase in activity in August largely reflects a temporary boost from the from the economy reopening and government stimulus, including the Eat Out to Help Out Scheme, rather than proof of a sustained ‘V’-shaped recovery.
Although the UK remains on course to exit recession in the third quarter, the looming triple threat of surging unemployment, further restrictions and a disorderly end to the transition period means the recent rally in economic output is likely to be short-lived.
The agenda
- 9.00am BST: Italian industrial production for August.
