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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK economy returns to growth; US inflation rises; Haldane to leave BoE – as it happened

Andy Haldane, chief economist at the Bank of England
Andy Haldane, chief economist at the Bank of England Photograph: Sarah Lee/The Guardian

Afternoon Summary

Time for a recap.

The UK economy has returned to growth, as businesses continue to get to grips with the Covid-19 restrictions. UK GDP expanded by 0.4% in February, led by growth at manufacturers and construction firms.

Economists predict a strong recovery this year, with growth expected to accelerate in April after non-essential shops and outdoor hospitality reopened this week.

UK exports to the European Union also staged a partial recovery in February, but remained lower than before the Brexit trade deal was implemented.

Defence firm Babcock has announced plans to cut 1,000 jobs in a restructuring programme. It also flagged a £1.7bn writedown, but shares have surged 32% today on relief that it isn’t planning a cash call.

The Bank of England’s chief economist, Andy Haldane, has surprisingly resigned. After three decades at the BoE, he’s off to run the Royal Society for Arts thinktank.

Economists say Haldane’s departure could give the BoE a more dovish tilt, given his concerns about inflationary risks.

In the US, inflation has jumped as higher energy prices and an economic recovery push up the cost of living. The CPI index rose by 2.6% per year in March, with prices showing their sharpest monthly increase in over eight years.

German investor confidence has dipped, though, as worries about new lockdown measures to tackle rising Covid-19 cases build.

Bitcoin has soared to fresh record highs, over $63,000, a day before the launch of the US’s largest cryptocurrency exchange, Coinbase, on Wall Street’s tech-heavy Nasdaq stock exchange.

The FTSE 100 has closed flattish tonight, as investors digest the pause of J&J’s vaccine rollout.

Here are more of today’s stories:

Goodnight. GW

South-east Asian “super app” Grab, which offers services from ride hailing and food delivery to online banking, is to float in the US in a record deal with a so-called Spac investment company that values the business at almost $40bn (£29bn).

Singapore-headquartered Grab, which intends to list on Nasdaq in the US, has struck a $39.5bn merger deal with US-based Altimeter Growth Corp.

It is by far the biggest deal to date involving a special purpose acquisition company (Spac) – a so-called “blank cheque” shell company that raises money first and seeks businesses to buy later – which has become the latest trend in global finance over the last year.

Cryptocurrency prices are continuing to rally sharply, with bitcoin hitting fresh highs over $63,000 today:

FTSE 100 close

After a fairly busy day... the UK’s leading share index has closed roughly where it started!

The FTSE 100 ended just 1 point higher at 6890, a gain of 0.02%. But within that, there were some notable moves.

Just Eat, the takeaway operator, jumped 6.8% after reporting another surge in orders this morning.

JD Sports, the high street retailer, gained 3% to a fresh record high after announcing it is restarting its dividend. But despite raising its profit guidance, the firm isn’t planning to return government support such as furlough payments.

Utilities, healthcare and financial stocks dropped, though, with airline group IAG (-1.4%) also in the fallers.

The FTSE 100 by sector, April 13 2021
The FTSE 100 by sector tonight Photograph: Refinitiv

The news that US health agencies have recommended states pause the administration of the Johnson & Johnson coronavirus vaccine also weighed on markets, after reports of rare and severe blood clots emerged in six women.

The vaccine’s rollout in Europe is being ‘proactively delayed’.

Full story: Andy Haldane to leave role as Bank of England chief economist

Becoming chief executive of the Royal Society for Arts, Manufactures and Commerce will allow Andy Haldane to explore issues beyond monetary policy and finance.

That includes the future of work amid rapid technological advances, and the sustainability of modern industry, explains our economics correspondent Richard Partington:

Moving to the RSA is expected to offer Haldane an opportunity to dig deeper into issues outside of monetary policy and mainstream economics, in a prominent job with fewer constraints than as a public servant.

Founded in 1754 with a focus on awarding prizes to new inventions, ideas and artworks, and granted a royal charter by Queen Victoria almost a century later, past fellows of the RSA have included figures such as Charles Dickens, Adam Smith and Karl Marx.

Haldane said he had been attracted to leaving the Bank for “another great British institution” after working closely with the RSA during his time at Threadneedle Street to shift the economics profession towards big challenges facing society, such as new technology, inequality and the climate emergency.

Here’s the full story:

Here’s a neat profile of Andy Haldane, from last year:

Haldane: from frisbee-chasing dogs to inflationary tigers

Andy Haldane showed his knack of quotability back in 2012, when he gave a speech titled “The Dog and the Frisbee” to the annual central banker’s gathering in Jackson Hole.

Haldane’s point was that increasingly complex regulation developed over recent decades to control the financial markets was ‘sub-optimal for crisis control’, as well as being costly and cumbersome.

In financial regulation, less may be more, he argued.

Haldane compared it to catching a frisbee -- a challenging task, where you need to overcome complex array of physical and atmospheric factors, among them wind speed and frisbee rotation.

Yet, catching a frisbee is common -- the average dog can master it, and some, such as border collies, are better at frisbee-catching than humans. The trick is to keep things simple.

As Haldane memorably put it:

Catching a crisis, like catching a frisbee, is difficult. Doing so requires the regulator to weigh a complex array of financial and psychological factors, among them innovation and risk appetite. Were an economist to write down crisis-catching as an optimal control problem, they would probably have to ask a physicist for help.

Yet despite this complexity, efforts to catch the crisis frisbee have continued to escalate. Casual empiricism reveals an ever-growing number of regulators, some with a Doctorate in physics. Ever-larger litters have not, however, obviously improved watchdogs’ frisbee-catching abilities. No regulator had the foresight to predict the financial crisis, although some have since exhibited supernatural powers of hindsight.

So what is the secret of the watchdogs’ failure? The answer is simple. Or rather, it is complexity.

That speech caused much interest - and was later criticised by incoming BoE governor Mark Carney (who had championed the tighter rules implemented since the 2008 crisis, known as the Basel III accord).

Other memorable Haldane speeches included a 2014 effort comparing monetary policy to cricket -- and the ‘corridor of uncertainty’ that bedevils batsmen as they ponder whether to play their strokes in good time, or wait and see where the ball’s going...

The first is to stay on the back foot and play late. This has the advantage of giving the batsmen more time to get a read on the trajectory of the ball as it swings and darts around. It avoids the risk of lurching forward and then needing hurriedly to reverse course if the first movement is misjudged. This is the way, Joe Root, the Yorkshire and England batsmen, plays his cricket. If he were on the MPC, he’d be called a dove.

But this strategy is not riskless. Playing late relies on having an uncannily good eye and strong nerve. It runs the risk of having to react fast and furiously to avoid missing the ball entirely. An earlier front foot movement would avoid that risk, allowing a more gradual movement forward. This is the way Ian Bell, the Warwickshire and England batsman, plays his cricket. If he were on the MPC, he’d be called a hawk.

So which is the better strategy? Benjamin Disraeli told us there are lies, damned lies and statistics. Here my analogy between cricket and the economy breaks down. Economic statistics, as we know, do sometimes lie. Cricket statistics, typically, do not. They tell us that Joe Root averages 43 in test matches to Ian Bell’s 45. In other words, it is a close run thing with the odds at present slightly favouring the front foot. But a good run of scores from either player could easily tilt the balance. That, in a nutshell, is where the MPC finds itself today.

In 2017, Haldane described the collapse of Lehman Brothers as the economics profession’s “Michael Fish moment” (a reference to when the BBC weather forecaster predicted in 1987 that the UK would avoid a hurricane that went on to devastate large parts of southern England).

Last September, he warned that Britain’s rapid recovery from its Covid-19 slump is being put at risk by undue pessimism and a “Chicken Licken” fear that the sky is about to fall in.

“Encouraging news about the present needs not to be drowned out by fears for the future. Now is not the time for the economics of Chicken Licken.

And in February, he compared inflation in the UK to a tiger, poised to awaken...

Friedrich von Hayek once referred to inflation control as akin to trying to catch a tiger by its tail. That metaphor seems apt today. For many years, the inflationary tiger slept.

The combined effects of unprecedentedly large shocks, and unprecedentedly high degrees of policy support, have stirred it from its slumber. In this environment, the tiger-taming act facing central banks is a difficult and dangerous one.

But Haldane’s tiger-taming days are now numbered....

Berenberg: long-run outlook for UK monetary policy broadly unchanged

Kallum Pickering, senior economist at Berenberg, agrees that Andy Haldane’s departure could tilt the MPC slightly more towards the dovish end of the spectrum (away from early interest rate rises).

But still -- if the outgoing chief economist’s optimism is proved correct, then the committee will surely respond appropriately to stronger growth and higher inflation, when it comes.

Although, perhaps not quite as quickly as if hawkish Haldane were sat around the table (or making speeches warning about inflationary risks)....

Pickering explains:

Sterling as well as gilt yields have dipped slightly – although not significantly – on the news, implying that the market judges a slightly more dovish tilt to the MPC once Haldane’s leaves. This assessment is broadly right, in our view.

In recent months, Haldane has sounded more optimistic about the UK’s economic prospects than the Bank of England’s official forecasts. He has also highlighted potential upside inflation risks. Correctly, markets have judged Haldane’s stance as more hawkish than the general MPC consensus.

But one member of the nine member committee cannot drive policy alone. All policy decisions are determined by a majority vote.

The MPC is required by its official remit to target 2% year-on-year consumer price inflation. Economic conditions thus determine the BoE’s policy response more than the influence of individual committee members.

Should Haldane’s projections for the economic and inflation outlook prove correct, markets can expect the remaining committee members (plus his replacement) to take a suitably hawkish policy stance if and when the time comes.

The long-run outlook for UK monetary policy thus remains broadly unchanged.

At the margin, with the absence of Haldane, the MPC may now react to any forthcoming inflation risks a little later than it otherwise would – but only by a meeting or two at the most.

During the period between Haldane resigning and the BoE appointing his replacement, the MPC may take a more dovish tilt. But since we do not expect any policy changes for the remainder of 2021, this should not affect any policy outcomes.

Markets will need to reassess the new policy tilt of the committee once the new chief economist takes her or his place.

Sterling fell slightly against the dollar and the euro following the news that Andy Haldane will leave the Bank of England’s Monetary Policy Committee after its June meeting, flags up Reuters.

That’s because Haldane has sounded more upbeat about the UK recovery than other MPC members, they explain:

“Markets have initially viewed it as the only major hawk leaving the committee, perhaps the only hawk at the moment,” James Smith, an economist at ING, said.

“His comments about the recovery being particularly fast were not shared by all his colleagues.”

The pound vs the euro
The pound vs the euro today Photograph: Refinitiv

Haldane quits BoE: Instant reaction

Andy Haldane’s departure has caused quite a stir in the City.

John Hawksworth, the former chief economist at PwC UK, says it’s a big loss for the Bank of England:

Samuel Tombs of Pantheon Economics says Haldane has been the “leading hawk” on the monetary policy committee (which sets interest rates), due to his belief that the UK economy will recover strongly from the pandemic.

City AM’s Andy Silvester points out that Haldane had compared the UK economy to a “coiled spring” earlier this year:

Ben Chu of the Independent agrees that it’s a significant move:

Andy Haldane will succeed Matthew Taylor at the RSA (Taylor’s departure was announced back in December).

Tim Eyles, RSA chair, says they’re delighted to have appointed Haldane, who has been the BoE’s chief economist since 2014.

“This is a moment of huge historic significance for the world. The challenges presented by Covid, deep-seated inequalities, and Brexit in the UK, require powerful and creative thinking, and the delivery of practical solutions capable of global application. Change must come if lives are to be improved and the planet’s future secured.

“Andy’s extraordinary accomplishments — in his thirty years at the Bank of England, in economic policymaking and academia, in his commitment to people leadership and diversity, equity and inclusion, and in building bridges between experts and citizens, government, business and the third sector — all make him ideally placed to lead the RSA at this critical juncture.

“We are incredibly excited at the prospect of Andy being at the helm to take the RSA’s ambitions forward and generate even greater societal impact, building on the strong legacy created by Matthew Taylor’s leadership over the last 15 years.

Chief economist Andy Haldane leaving Bank of England

Newsflash: Andy Haldane, the ever-quotable Bank of England chief economist, is leaving the central bank this summer.

Haldane will leave in June, to become Chief Executive of the Royal Society for Arts, Manufactures and Commerce, the Bank says.

That’s an unexpected move, as Haldane had been appointed a new three-year term as a member of the Monetary Policy Committee back in June 2020.

Here’s the statement:

Andy Haldane to become Chief Executive of the Royal Society for Arts, Manufactures and Commerce

Andy has worked for the Bank for over thirty years, leading both its financial stability and monetary analysis areas during that time and serving as a member on both the Bank’s Financial Policy Committee (FPC) and Monetary Policy Committee (MPC). In addition to his contribution to the Bank, Andy has also led HM Government’s Industrial Strategy Council, as well as co-founding Pro Bono Economics, a charity dedicated to using economics to empower the social sector.

Andy will step down from the MPC after its June meeting. He will then take up his post at the RSA in September. The Bank will advertise for a successor to Andy in due course.

Andy Haldane, Chief Economist, said: “The Bank is a fantastic institution and I loved my 32 years in public service there. I will miss hugely my brilliant colleagues and friends but know that, under Andrew’s exceptional leadership, they will continue to serve the people of the UK with distinction. I am thrilled to have the opportunity to lead another great British institution, the RSA. For 250 years, it too has served society with distinction, combining the very best of public service, commercial innovation and civic participation. I am delighted to be helping write the next chapter in the RSA’s illustrious history”.

Andrew Bailey, Governor, said: “Andy has been an exemplary public servant over his more than three decades at the Bank, making major contributions to the Bank’s work in financial stability and monetary policymaking. He has also been an imaginative and creative thinker on the wide range of issues the UK economy faces, as well as helping create and drive forward new ways for the Bank to engage with the public. He will be sorely missed but I know the RSA will be well served by Andy as Chief Executive.”

Bloomberg: US Consumer Prices Increased in March by Most Since 2012

US consumer prices increased by the most in more than 8 and a half-years in March, points out Bloomberg:

U.S. consumer prices climbed in March by the most since 2012, adding to evidence of budding inflationary pressures as the economy reopens and demand strengthens.

The consumer price index increased 0.6% from the prior month after a 0.4% gain in February, according to Labor Department data Tuesday. A jump in the cost of gasoline accounted for almost half the overall March advance. The median estimate in a Bloomberg survey of economists called for a 0.5% rise.

US annual inflation rate rises to 2.6%

US inflation has risen smartly, as higher energy costs drive up the cost of living.

Consumer prices rose by 0.6% month-on-month, pushing the annual rate of inflation up to 2.6%, up from 1.7% a month ago.

That’s a little higher than forecast.

Gasoline prices surged by 9.1% year-on-year, as the jump in crude energy prices and higher demand filtered through to the pumps.

Core inflation, which strips out volatile measures like fuel and food, came in at 1.6%.

This all adds to the debate about whether the jump in inflation will be temporary, or more permanent, as the US economy reopens and stimulus spending boosts demand.

Here’s some early reaction:

UK trade: What the experts say

Trade experts have been digesting the partial recovery in UK exports to the EU in February, after January’s tumble.

Here’s some reaction:

Mark Lynch, Partner at corporate finance house, Oghma Partners

“February trade for Food and live animal exports to the EU showed a marked improvement from the dire January numbers though year on year estimated February exports are still down 14% vs 2020 and 23% on 2019. The partial recovery, also reflected in the near doubling of Export Health Certificates, highlights that the food industry is learning how to cope with the barriers created by Brexit. However for SMEs, the challenges of exporting small quantities of product remain and for the likes of the shellfish and meat industry, the challenges to export seemingly remain systemic.

The recent call from the meat industry for three action points from government continue to be valid, Lynch adds, namely:

  1. A Switzerland like deal with the EU on a common Veterinary area
  2. An integrated, end-to-end electronic tracing and certification system
  3. Establishing a government led veterinarian and auxiliary inspection and certification system

ING Developed Markets Economist James Smith:

These latest figures suggest that UK-EU trade situation improved in February.

In particular, we can see that UK exports to Europe recovered a fair chunk of the early-2021 declines - and remember it is this direction of trade flows that were arguably more heavily impacted by the changes in January (the UK has offered grace periods on many aspects of the new relationship for incoming goods). Imports from Europe stayed depressed, though this is perhaps linked to stockpiling activity during the fourth quarter.

The recovery in exports tallies with what we saw in other data - including traffic across the Dover-Calais crossing. But just as the collapse in trade in January wasn’t totally down to Brexit disruption, we’d caution the latest rebound in UK shipments to the EU probably doesn’t tell us it was business as usual for firms.

David Lowe, partner at law firm, Gowling WLG:

The reality is that exports are much lower than pre Brexit.

That is because exporting to the EU is harder and more expensive. Exports create value for the UK, with lower exports the UK will be poorer.

NIESR: Signs of a spring economic recovery

Economic thinktank NIESR has predicted that the UK economy picked up pace in March, and will also grow strongly this month.

Having analysed February’s GDP report, NIESR estimates that the economy shrank by 1.5% in the first quarter of 2021 -- less than originally expected.

Growth is then expected to rebound sharply in Q2, at around 4.6%, thanks to “pent-up demand and a return towards pre-Covid levels in the hospitality and retail sectors.”

NIERS expects GDP to rise by 1.8% in March, when many children returned to school, followed by 2.2% growth in April -- driven by the partial re-opening of pubs and restaurants this week.

Rory Macqueen, principal economist for macroeconomic modelling and forecasting, explains:

“Despite little change in restrictions, a return to growth in February and upward revisions to January GDP mean that the contraction in the first quarter will be much smaller than anticipated.

Clearly much of the economy has adapted to cope with Covid-19 restrictions: while hospitality was down by over 50 per cent in February on a year earlier, and the arts by over a third, both manufacturing and construction were only 4 per cent smaller in February. Output in public administration, health and energy sectors was higher than a year earlier.

If the vaccine programme and lifting of restrictions continue on schedule this provides a firm basis for continuing growth in the second quarter and 2021 overall. The third wave in Europe and the success of other countries in vaccinating their populations will also have relevance for the recovery of the UK, as an open economy.”

Here’s our news story on Babcock’s restructuring plans:

My colleague Georgina Quach has spoken to several UK firms about how they’ve coped with the pandemic, and the Brexit deal.

AJ Power, which is based in Craigavon, Northern Ireland, manufactures diesel-powered generating sets for sale in international markets -- and has been hit by an onslaught of paperwork and surcharges, she reports:

The [Northern Ireland] protocol created a new trade border with Northern Ireland and the rest of the UK, resulting in additional checks on goods.

“It has been a huge problem to us,” [chairman Ashley] Pigott said. “We have 15,000 production line items – 80% of which originate from mainland Great Britain – that all need to be customs coded.”

“On top of that, you have a whole administrative bureaucratic nightmare,” Pigott said, adding the government’s trader support service, which is intended to support firms moving goods in and out of Northern Ireland, had created unexpected difficulties for which they were not prepared .

Felicity Lindsay, real estate partner at law firm Gowling WLG, says Goldman Sachs’ new Birmingham office is a significant move:

“Larger companies especially, still derive a significant level of brand equity in the market from their office buildings, which provide a sense of belonging and community to employees and help to increase innovation and engagement levels.

Such a significant investment in the future of Birmingham’s office market particularly, speaks volumes for the likely post-pandemic increase in regional hubs, as an alternative or as a supplement to HQ space in the capital.”

Updated

Larry Elliott: UK trade recovering but picture is clouded by Covid and Brexit

Here’s our economics editor, Larry Elliott, on today’s UK trade data:

The government’s monthly trade figures come with a health warning – and rightly so. A combination of Covid-19 and Brexit means it is impossible to draw any firm conclusions about the trend from a single month’s data.

Look at what has happened to the UK’s exports to the EU. These collapsed by a revised record 42% in January but according to the latest figures from the Office for National Statistics subsequently rose by more than 46% in February.

Some bounceback in February was always to be expected. Towards the end of 2020 there was a lot of stockpiling as firms anticipated disruption as a result of the new UK-EU trading arrangement. That was a wise precaution because it is clearly taking time for businesses – on both sides of the Channel – to adjust. That process was not helped by the lockdown measures imposed across the UK in response to a fresh wave of the pandemic.

As it happens, UK exports to the EU have recovered more quickly than imports from the EU, which rose by just over 7% in February after a drop of 30% in January. Again, this is nothing to get too excited about: stockpiling could simply have been more extensive in the UK than in the EU....

More here:

Goldman Sachs to open Birmingham office

Goldman Sachs has announced it will open a new office in Birmingham, widening its UK footprint, in a boost to Britain’s second-largest city.

It is set to open in the third quarter of 2021, and will eventually have several hundred staff across a number of divisions.

Its engineering division (which includes quantitative strategists, cyber security, software engineering and systems engineering) will move in first -- with a mix of new hires and employee transfers.

Goldman says Birmingham offers a “number of unique advantages”, including its universities and local tech sector, while also being close enough to London to allow easy travel to the capital.

The build out of an office in Birmingham offers access to a strong and deep new talent pool, excellent academic institutions, a growing technology sector and longstanding leadership in STEM industries.

Richard Gnodde, chief executive officer for Goldman Sachs International, adds:

“Establishing a new office in Birmingham will diversify our UK footprint and give us access to a broad and deep talent pool in the local area. We see tremendous opportunity to enhance our UK presence and continue delivering for our global clients.”

Investors are now more worried about the risks of higher inflation, taxation changes and a “taper tantrum” in the bond market, rather than the Covid-19 pandemic.

That’s according to Bank of America’s latest Fund Manager Survey, which found that optimism remains very high.

Just 7% of those interviewed thought that equities were in a bubble, although 74% thought that bitcoin was a bubble.

The survey found that:

Macro & market optimism among global investors remains very high (taper tantrum, inflation, higher taxation seen as bigger risks than COVID-19, long stocks at 10-year high, long banks at 3-year high); FMS says low wage growth = Q2 bullish risk, disappointing tech/cyclical EPS = Q2 bearish risk.

Fund managers also reported that they’d slightly increased their cash holdings (to 4.1%, from 3.8% in February).

Reuters says:

Fund managers increased their cash allocations as expectations of higher inflation, taxation changes and a “taper tantrum” leave equities vulnerable to pullbacks, BofA’s April fund manager survey released on Tuesday found.

Bitcoin hits record high of $63,000

Bitcoin

In the cryptocurrency world, bitcoin has hit a fresh record high.

Bitcoin has just hit $63,000 for the first time ever, up 5% today.

Its price has more than doubled since the start of 2021, and has surged by 450% over the last six months.

Back in April 2020, it was trading at around $7,000.

The price of bitcoin over the last year
The price of bitcoin over the last year Photograph: Refinitiv

Bitcoin’s recent rally has been attributed to wider adoption from established investors, such as BNY Mellon which recently annnounced plans to hold, transfer and issue bitcoin and other cryptocurrencies on behalf of its asset-management clients.

Backing from Paypal, which is letting US customers pay for some goods and services using bitcoin, also helped, as has predictions that Covid-19 stimulus spending will drive up inflation and devalue fiat currencies.

CNBC says investors are also eagerly anticipating the stock market listing of cryptocurrency exchange Coinbase tomorrow:

Coinbase is set to go public on Wednesday, and could be valued at as much as $100 billion — more than major trading venue operators like Intercontinental Exchange, owner of the New York Stock Exchange.

Crypto investors are hailing the company’s stock market debut as a major milestone for the industry after years of skepticism from Wall Street and regulators.

Updated

German investor morale hit by lockdown fears

Economic sentiment in Germany has dropped for the first time since last November, as investors worry about the risk of further Covid-19 restrictions.

ZEW, the economic research institute, has reported that its Indicator of Economic Sentiment for Germany fell this month to 70.7 points, sharply down on March’s 76.6.

That follows a rise in Covid-19 cases in recent weeks, which is leading German chancellor Angela Merkel to prepare to take control over the Covid-19 response from federal states.

ZEW says this is the first time that the indicator has experienced a drop since November 2020, but that expectations are still at a very high level.

A separate index of the current economic situation in Germany improved by 12.2 points, up to -48.8 from -61 in March.

ZEW President Professor Achim Wambach expains:

The financial market experts are somewhat less euphoric than in the previous month.

The ZEW Indicator of Economic Sentiment is, however, still at a very high level and the current situation is assessed much more positively than in March. Fears of a stricter lockdown have led to a decline in expectations for private consumption. Nevertheless, the outlook for exports is better than in the previous month.”

Last month Merkel reversed plans to put Germany under a hard lockdown over Easter following a critical backlash.

Merkel’s coalition has now drafted legislation that would shift the power to impose Covid-19 restrictions to the federal government from regional leaders to combat a surge in infections.

Last week, the head of the country’s disease control agency said Germany needed a two- to four-week lockdown to prevent hospitals from being overwhelmed.

A spokesperson for the German chancellor told reporters on Friday.

“Germany is in the middle of a third wave, so the federal government and the states have agreed to add to the national legislation.”

Updated

Full story: UK economy returns to growth despite Covid restrictions

Britain’s economy returned to growth in February despite continuing government Covid restrictions as businesses adapted to lockdown and exports to the EU started to recover after a record plunge in the first month since Brexit.

The Office for National Statistics said gross domestic product (GDP) rose by 0.4% in February from a month earlier as the economy showed some signs of improvement after a revised drop of 2.2% in January.

Despite the toughest lockdown conditions since the first wave of the virus remaining in place, retailers recorded a pickup in sales, while growth in car production fuelled a rise in manufacturing activity after a poor January and construction grew strongly.

However, the economy remains 7.8% smaller than in February 2020 before the pandemic struck.

Here’s the full story:

Britons’ appetite for a takeaway during the latest Covid-19 lockdown led to a near-doubling in orders over the last three months at Just Eat Takeaway.com.

Customers stuck at home across Europe placed 200m orders with the company between January and March. Orders were up 79% compared with the same period a year earlier.

The UK accounted for most of that total, with orders surging 96% to 64m, followed by Germany and the Netherlands, where delivery orders grew by 77% and 63% respectively. More here:

Updated

Defence firm Babcock to cut 1,000 jobs

A photo issued by Babcock International Group of Britain’s newest aircraft carrier, HMS Prince of Wales, leaving Rosyth Dockyard in Scotland for the first time
A photo issued by Babcock International Group of Britain’s newest aircraft carrier, HMS Prince of Wales, leaving Rosyth Dockyard in Scotland for the first time Photograph: Kenny Smith Photography/PA

UK defence firm Babcock International is cutting 1,000 jobs, many in the UK, as part of a restructuring plan.

Babcock says it is cutting management laters, to lower operating costs and create a “more efficient and effective” business.

The engineering firm, whose biggest customer is Britain’s Ministry of Defence, says:

We are reducing layers of management within the business to form a simpler, flatter structure that will simplify how we operate, improve line of sight, shorten communication lines and therefore increase business flexibility and our responsiveness to market conditions. This will reinforce a one company culture and remove the duplication and lower quality delivery that a siloed approach delivered.

This, unfortunately, will result in headcount reductions. We are also reducing the Group’s property portfolio, especially in the UK.

The changes will result in approximately 1,000 employees leaving the Group within the next twelve months with an approximate restructuring cost of £40m, most of which are cash costs.

The cuts are expected to affect around 850 jobs in the UK, Sky News adds.

Babcock expects to raise at least £400m over the next 12 months by selling off some businesses, as part of the restructuring plan.

It also told shareholders that a contract profitability and balance sheet review (“CPBS”) has identified impairments and charges of up to £1.7bn.

The vast majority of that write-off is one-off, but the review will also lower Babcock’s underlying operating profit by approximately £30m.

Shares in Babcock have surged, up nearly 30% at present (Reuters says there is relief that its recovery was not expected to include a cash call).

But it’s clearly a tough day for its employees. The BBC says:

Babcock, which provides maintenance and support for the UK’s nuclear submarines at Faslane in Scotland, employs about 27,000 people in the UK out of 30,000 worldwide.

Around 850 jobs in the UK will be lost as part of the company’s plan to simplify the business and reduce layers of management.

Virgin Atlantic boss warns on long-term hit to business travel

A Virgin Atlantic aeroplane tailfin and nose livery at Heathrow airport.
A Virgin Atlantic aeroplane tailfin and nose livery at Heathrow airport. Photograph: Toby Melville/Reuters

The boss of Virgin Atlantic has warned that business travel could suffer a long-term hit from the pandemic.

In a reminder that the economy won’t return to how things were before Covid-19, Virgin Atlantic CEO Shai Weiss has told the Financial Times that the airline expects corporate travel will be 20% lower over the next two years compared with pre-pandemic levels.

With the rise of video-conferencing services like Zoom and Microsoft making some face-to-face meetings unnecessary, demand for business class services could be hit even after the wider economy has recovered.

Here’s the story, and here’s a flavour:

“Will business travel return in the same way? No, I don’t think so. But do I think there will be a return to business travel? Absolutely,” he [Weiss] said.

Airlines have reported strong demand for leisure trips when borders open and people can travel, but one of the biggest questions facing the industry is how many lucrative corporate clients will be lost forever to remote working and the successful rollout of video conferencing technology.

Weiss believes the majority of people are tired of platforms such as Zoom and Microsoft Teams, but said the industry will inevitably take a hit from the changes to the way people work.

FT: Virgin Atlantic boss warns on long-term hit to business travel

Here’s another handy thread on February’s rise in UK exports to the EU, from trade expert David Henig of the European Centre for International Political Economy (ECIPE).

February’s UK-EU trade data shows a ‘mixed’ picture, says Thomas Sampson, associate professor at the London School of Economics.

He points out that although trade picked up after January, volumes are still much lower than a year ago:

He also points out that UK food exporters were struggling, two months into their new trade relationship with EU customers.

The food industry has warned repeatedly that trade with the continent now requires significantly more paperwork, cost and effort.

Animal products such as meat have a particularly high number of checks and documents, as this interactive explains:

We reported last month that shellfish farmers were considering legal action against the Department for the Environment, Food and Rural Affairs, saying the government had misled the industry over its post-Brexit arrangements with the EU.

UK exports to EU "partially rebounded" in February

The UK’s recovery in February was partly due to a rise in exports to the European Union after their dramatic slump in January.

Exports of goods to the EU “partially rebounded” in February 2021 (the second month after the Brexit free trade deal began), says the Office for National Statistics, jumping by 46.6% month-on-month, a rise of £3.7bn.

That follows a 42% tumble in January, when UK exports to the EU saw a record fall of £5.7bn.

The ONS says the increase was driven by machinery and transport equipment and chemicals, particularly cars and medicinal and pharmaceutical products.

Imports of goods from the EU into the UK also grew, but more modestly -- up by 7.3% or £1.2bn in February, after a record fall of £6.7bn (-29.7%) in January.

UK trade data

The Financial Times points out that UK-EU trade is still below its levels before Brexit, and the pandemic:

The rise still left UK exports to the EU 15 per cent down on December’s level, similar to the level of the Brexit-related drop in trade between the UK and the EU expected in the longer term by the Office for Budget Responsibility.

Exports to the EU were 22 per cent lower than February 2019 levels and imports 26 per cent lower than in the same month two years ago well before the impact of both Brexit and Covid-19 on the figures.

UK trade data, February 2021
UK trade data, February 2021 Photograph: ONS

Britain’s total trade deficit for February 2021, (excluding non-monetary gold and other precious metals) widened by £0.5bn to £1.4bn.

That was caused by a £2.9bn (6.5%) increase in imports, while exports increased by £2.3bn (5.4%).

Updated

Jon Hudson, fund manager of Premier Miton UK Growth Fund, also predicts a strong recovery for the UK this year, following the pick-up in growth in February.

“The UK economy is still almost 8% lower than where it was last year but a strong bounce back is likely in the second part of this year as restrictions ease and households begin spending the huge level of forced savings they have accumulated over the past year.”

The UK’s return to growth in February highlights that businesses adapted to the Covid-19 restrictions, says NIESR, the economic thinktank:

Invesco: Don't expect 'full normality' to return this year

Paul Jackson, Global Head of Asset Allocation Research at Invesco, predicts a ‘strong rebound’ in April-June, as the UK’s covid-19 restrictions are rolled back.

We expect further recovery in the March and April period (note that the British Retail Consortium has just reported that same-store sales were up 20.3% in March versus a year ago, much better than the expected 12.0% gain).

“If the February gain is repeated in March, Q1 GDP would decline by 2.6%, after a gain of 1.3% during 2020 Q4. Given the gradual relaxation of lockdown measures, we expect a strong rebound in Q2. Thereafter, we suspect the release of pent-up demand (indicated by a household savings ratio of 16.1% at end-2020 compared to a 2019 average of 6.5%) will generate better than average growth during the second half of the year.

Such gains may be tempered by the ending of the furlough programme on 30 September (4.7 million employees were on Furlough at the end of January and some may become permanently unemployed) and the anticipation of the higher tax rates that will be needed to help consolidate government finances.

But he also warns that ‘full normality’ may not arrive this year:

“The UK’s successful vaccination programme allows the possibility of a return towards “normality” within the domestic economy. However, large parts of the global population will remain unvaccinated for some time, which, along with a new wave of infections in many parts of the world (and the prevalence of new Covid variants), suggests the UK may have to maintain some international travel restrictions beyond the end of 2021.

Full “normality” is unlikely to be achieved this year.

Capital Economics: Stronger recovery ahead

Today’s GDP report suggests that January was probably the low point of the year, says Thomas Pugh of Capital Economics.

He says the slow climb out of the latest COVID-19 hole began in February; vaccinations and the reopening of the economy should trigger “a rapid rebound in activity” over the next few months.

Overall, the third lockdown left the economy in a fairly big hole, although January’s decline was revised from -2.9% m/m to -2.2%. And the rise in GDP now leaves the economy 7.8% below the pre-pandemic level compared to our expectations of 8.6% below.

Moreover, with schools having opened in March and outdoor hospitality and non-essential retail stores opening yesterday, the rises in GDP should be much stronger in the coming months. By early next year, we think the economy will have returned to the pre-pandemic level.

The UK economy’s return to growth in February is a welcome sign, says Emma-Lou Montgomery, associate director for Personal Investing at Fidelity International:

“After a sobering start to the year, February’s GDP figures show a rosier picture. GDP returned to growth in the second month of the year, up 0.4%, adding to expectations that the Q1 downturn won’t be as sharp as initially feared.

“There is much reason for optimism. Consumers have enthusiastically returned to the high street, glasses have been raised to the opening of outdoor dining and drinking as restrictions ease and the vaccination programme continues at pace. This all points towards a positive direction of travel for the UK economy. The International Monetary Fund (IMF) expects the UK to post 5.3% growth in 2021, and 5.1% in 2022. This would make the UK the fastest-growing G7 country at the end of the forecast period.

The UK construction sector saw a rise in repair and maintenance (1.9%) and in new work (1.5%) in February.

That lifted overall output up by 1.6% -- but again, the sector is still smaller than before the pandemic, even though builders have kept operating through the current lockdown.

UK construction data
UK construction data Photograph: ONS

The ONS explains:

The growth in repair and maintenance was mainly driven by private housing (growing 4.7%). The growth in new work was mainly driven by private commercial (growing 4.0%) and public housing (growing 13.5%).

Previous estimates suggested that construction had recovered to its pre-pandemic (February 2020) levels in November 2020, however, following revisions, the construction sector in February 2021 is 4.3% below pre-pandemic levels.

The construction sector contracted by 1.0% in the three months to February 2021. The main contributors were new work in private commercial, private new housing and private industrial, which contracted by 5.3%, 2.3% and 13.6% respectively.

UK manufacturing returned to growth in February, for the first time since November.

The ONS says that overall industrial production rose by 1.0%, with the manufacturing sub-sector the largest contributor -- expanding by 1.3% during the month.

Seven out of the thirteen manufacturing sub-sectors grew. The largest positive contributions came from the manufacture of transport equipment sector (which grew by 5.4%) and manufacturing of computer, electronic and optical products (which grew by 9.0%).

UK production
UK production Photograph: ONS

Customer-facing services companies still badly hit

February’s GDP report also highlights the ongoing struggles in the services sector, where non-essential shops and hospitality firms were shuttered (until yesterday).

The services sector was 8.8% below its pre-pandemic level in February, having only grown by 0.2% during the month.

Consumer-facing services are worst hit, of course, due to the pandemic restrictions -- their output remained 18.6% below pre-pandemic levels.

UK service sector GDP
UK service sector GDP Photograph: ONS

Chart: UK economy still smaller than in October

After growing modestly in February, the UK economy is still 3.1% below levels seen in October 2020.

That was the initial recovery peak, before the second national lockdown in November.

And as this chart shows, UK GDP is still sharply below its pre-crisis levels (7.8% smaller than in Febuary 2020).

UK GDP
UK GDP Photograph: ONS

Updated

Here’s some snap reaction to the GDP report:

Introduction: UK GDP rose 0.4% in February

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

The UK economy returned to modest growth in February, but remains sharply below its pre-pandemic peak amid the third Covid-19 lockdown.

Figures just released by the Office for National Statistics show that UK GDP rose by 0.4% in February, having shrunk in January.

Growth was led by the production sector and construction, with the large services sector only expanding modestly due to pandemic restrictions.

That leaves the economy around 7.8% below the levels seen in February 2020.

The ONS says:

  • UK gross domestic product (GDP) is estimated to have grown by 0.4% in February 2021, as government restrictions affecting economic activity remained broadly unchanged.
  • The service sector grew by 0.2% in February 2021, as wholesale and retail trade sales picked up a little but, overall, consumer-facing services industries remain well below pre-pandemic (February 2020) levels.
  • Output in the production sector grew by 1.0% in February 2021, as manufacturing grew 1.3% following contraction in January.
  • The construction sector grew by 1.6% in February 2021, driven by growth in both new work and repair and maintenance.

The ONS has also revised January’s data - to show that the economy only shrank by 2.2%, up from a contraction of 2.9% estimated originally.

More details and reaction to follow...

Also coming up today

Investors are bracing for the latest US inflation report, due today, which may show signs that America’s economic recovery is pushing up the cost of living.

US consumer prices are tipped to have risen by 0.5% in March, partly due to higher energy prices, pushing the annual inflation rate up to 2.5%, from 1.7% in February.

A strong inflation reading will reignite concerns that America central bank could ease back on its stimulus package sooner than planned (although Federal Reserve chair Jerome Powell has played down such concerns before...).

Ipek Ozkardeskaya, senior analyst at Swissquote, explains:

The market reaction to the inflation data will of course depend on the strength of the data, but also on how much investors are ready to buy into Jerome Powell’s prediction that higher inflation won’t last long enough to compromise the Federal Reserve’s (Fed) inflation target of an average of 2%. Jerome Powell will continue repeating that inflation is not an issue in the longer run.

If there is a chance that an acceleration to 2.5% is already priced in, and could be stomached by an average investor, a release above 2.5% could spur panic, and the Fed hawks, push the US yields and the US dollar higher, and send the US stock indices, especially the teck stocks lower. The major US indices closed Monday’s session slightly lower, with tech stocks leading losses. Activity on US futures hint that investors do not walk serenely into the data release.

Traders are also digesting strong trade data from China overnight, which showed that exports rose over 30% year-on-year in March, with imports soaring 38%.

That’s the fastest rise in imports in four years - a signal that the Chinese domestic economy is strengthening, as global demand picks up.

The agenda

  • 7am BST: UK GDP report for February
  • 10am BST: ZEW survey of German economic confidence
  • 1.30pm BST: US inflation report for March
  • 2pm BST: NIESR Monthly tracker of UK GDP for March

Updated

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