Closing summary
We’ve had rocketing UK retail sales for March and PMI data indicating the strongest private sector growth in eight years in April as coronavirus restrictions were eased, which pushed the pound higher. The eurozone shrugged off tighter lockdowns and enjoyed a record manufacturing boom in April, while the service sector returned to growth.
Other official data laid bare the fiscal cost of the pandemic: The UK government was forced to borrow a peacetime record of £303bn to combat Covid-19 in the first full financial year of the crisis, but the total was lower than originally feared.
Bitcoin has tumbled to below $50,000, after hitting a fresh record of $64,895 last week. Speculators in cryptocurrencies have been left nursing heavy losses after reports Joe Biden is planning to raise taxes on the wealthiest Americans to tackle inequality and finance trillions of dollars in higher social spending.
The tax plans have also hit sentiment on stock markets, along with fears over rising Covid-19 infections in India and Japan. The UK’s FTSE 100 is 0.46% lower while Germany’s Dax has lost 1% and France’s CAC is down 0.5%. However on Wall Street, the Dow Jones is flat, the S&P 500 rose 0.2% and the tech-heavy Nasdaq advanced 0.5%, bouncing back from yesterday’s losses.
Labour has formally called for the chancellor, Rishi Sunak, to publish all records of text messages, calls or other informal meetings connected to tax rules and Covid support schemes, following the row about lobbying by business interests.
JP Morgan Chase has admitted that it misjudged its decision to bankroll football clubs’ failed attempt to create a breakaway European Super League, after a huge backlash from fans and politicians.
FirstGroup has sold the bulk of its North American transport business in a deal worth $4bn, as the transport group looks to focus on its UK bus and rail operations.
Thank you for reading, and have a great weekend. We’ll be back next week. Bye! -JK
Chris Williamson, chief business economist at IHS Markit, says:
The US economy is enjoying a strong start to the second quarter, firing on all cylinders as loosening virus restrictions, an impressive vaccine roll-out, a brighter outlook and stimulus measures all helped boost demand.
The upturn is broad-based: the service sector is growing at the fastest rate recorded in almost 12 years of survey history, and manufacturers reported one of the strongest expansions seen over the past seven years. The latter was all the more impressive, as factories continued to be throttled by unprecedented supply chain delays, a consequence of which was a further steep rise in prices.
The worsening supply situation is a concern for the outlook, especially in relation to prices. Supply needs to improve to come into line with demand. But with record supply chain delays driving a rise in backlogs of uncompleted work of a magnitude not surpassed for over seven years, firms appear to be struggling to boost operating capacity in the near-term.
US private sector growth hits fresh record – PMI
The IHS Markit survey for the US is out – showing a fresh record high in private sector growth in April.
- Flash US Composite Output Index at 62.2 (59.7 in March). Series record high.
- Flash US Services Business Activity Index at 63.1 (60.4 in March). Series record high.
- Flash US Manufacturing PMI at 60.6 (59.1 in March). Series record high.
- Flash US Manufacturing Output Index at 57.2 (55.6 in March). 2-month high.
IHS Markit reports:
US private sector businesses registered a survey record expansion of output during April, as looser Covid-19 restrictions and strong client demand boosted business activity. A steep upturn in manufacturing production occurred despite unprecedented supply chain disruptions, while services activity growth hit a new high.
U.S. private sector output growth hit a fresh series record in April, according to the Flash #PMI data (index at 62.2), as strong client demand boosted activity. Supply chain disruptions continued to hamper goods production, however. Read more: https://t.co/4E2YhYJkvH pic.twitter.com/HkdWSss83Z
— IHS Markit PMI™ (@IHSMarkitPMI) April 23, 2021
Updated
On Wall Street, the Dow Jones fell 50 points at the open, or 0.15% while the S&P 500 rose 10 points, or 0.25%, and the Nasdaq climbed 74 points, or 0.5%, after yesterday’s losses.
Daniel Kral at Oxford Economics has looked at the fiscal cost of the pandemic across different economies in the eurozone.
Data this week revealed that for the most indebted countries, the surge was mainly driven by a collapse in economic activity. For governments entering the pandemic with relatively low public debts, fiscal support measures were the main driver. Kral adds:
Governments can live with high public debt, subject to continued favourable interest rate and nominal growth dynamics. But the uneven fiscal response risks fuelling further economic divergence within the eurozone, although the joint support mechanisms introduced last year – the ECB’s large asset purchases and Next Generation EU fund – are mitigating factors.
For the eurozone overall, the headline fiscal deficit widened to 7.2% of GDP in 2020 from 0.6% in 2019, with deficits ranging from 11.0% in Spain to 4.2% in Germany. Having declined for several years, eurozone public debt increased by 14.1pp to 98% of GDP. The largest increases were in Greece (by 25.1pp to 206% of GDP), Spain (by 24.5pp to 120% of GDP) and Cyprus (by 24.2pp to 118% of GDP). At almost 156% of GDP, Italy’s public debt at end-2020 was close to its post-World War I record high.
By comparison, the UK’s national debt has increased to $2.14tn, or 98% of national income, similar to the eurozone’s ratio.
Updated
Employees at the Bank of Italy headquarters in Rome experienced problems with their PCs, emails and internal bank programs early Friday, fuelling concerns of a hacker attack, Bloomberg News is reporting.
Employees at the Bank of Italy headquarters in Rome experienced problems with their PCs, emails and internal bank programs early Friday, fueling concerns of a hacker attack https://t.co/3UVpKO7X8H
— Bloomberg (@business) April 23, 2021
Sterling has bounced back, erasing yesterday’s losses after UK retail sales rocketed in March and PMI data indicated the strongest private sector growth in eight years. The pound is currently trading 0.2% higher at $1.3875, and is once again set for a weekly gain. Against the euro, sterling is flat at $86.86p.
While stocks across Europe continue to slide, with declines of £0.4% (France’s CAC) to over 0.6% (UK’s FTSE 100 and Germany’s Dax), Chris Iggo of Axa Investment Managers has taken a broader look at the markets.
In financial markets things have been relatively calm. A phrase I have heard a lot over the last couple of weeks is that the market is in a “wait and see” mode. The consensus is clear, and we are waiting for the data to confirm that the global economy is at the beginning of a long expansion.
The big movers have been equities this month. I pointed out that April tends to be a good month for stocks, and we are seeing new highs in several indices. In the US, the Q1 earnings season is in full swing and so far, with about a fifth of companies having released results, earnings are running 34% above expectations. Bottom-up consensus earnings-per-share forecasts for S&P500 companies remain bullish with 2021 expected to see a 24% increase over the 2020 outcome (and of course 2020 got better from the second quarter onwards) and another 16% increase expected in 2022.
It still means the market looks expensive on a traditional price-earnings measure (25.5x this year’s earnings at the current level of the market) but we are in period of unprecedented liquidity and low real interest rates... Until there is a new twist in the macro-outlook or another period of bond volatility, then the wait-and-see approach supports a fully invested strategy.
Corporate news round-up
Here is a round-up of today’s other news.
JP Morgan Chase has said it misjudged its decision to bankroll football clubs’ failed attempt to create a breakaway European Super League, after a huge backlash from fans and politicians.
The US bank had financed a €3.25bn (£2.8bn) funding package for the plan, which would have seen 15 European teams, including six of the biggest in England, given permanent places in an annual competition.
The Maltese government continues to sell citizenship to multimillionaires who have minimal genuine links to the country, a Guardian undercover investigation has revealed.
Rich applicants are signing €1m deals in return for Maltese passports after a 12-month qualifying period, secret filming suggests, in news that will further alarm Brussels after this week’s leak of documents from one of the world’s largest passport brokerage firms.
FirstGroup has sold the bulk of its North American transport business in a deal worth $4bn, as the transport group looks to focus on its UK bus and rail operations.
The Aberdeen-based FirstGroup has sold First Student, the biggest school-run operator in the US, with about 43,000 yellow buses, and First Transit, which provides outsourced public transport, to EQT Infrastructure.
Dozens of former post office workers have had their convictions for theft, fraud and false accounting quashed by the court of appeal after judges ruled the convictions were due to “corrupt data” from the Post Office’s IT system.
In the latest chapter of one of the biggest miscarriages of justice in English legal history, 39 people who were prosecuted after the Horizon IT system installed by the Post Office and supplied by Fujitsu falsely suggested there were cash shortfalls, had their names cleared on Friday.
And a couple of stories from last night:
Keir Starmer has announced a £30bn plan to revive UK manufacturing by creating 400,000 green jobs.
A small medical ventilator firm has hit out at the apparent special treatment given to the engineering firm Dyson on tax, after it was left unable to sell more than 100 devices built at the request of the health secretary, Matt Hancock.
The Lancashire-based NorVap started building ventilators at the onset of the Covid pandemic in mid-March 2020 after the government called on British industry to join a “ventilator challenge” to help the NHS treat a flood of Covid-19 patients.
We have received a response from Lloyd’s to the climate protests outside its London headquarters at 1 Lime Street in the City of London today, where a pile of black rubble – representing fake coal – was dumped outside the entrance. The insurance market says:
Lloyd’s is committed to accelerating its transition towards a more sustainable insurance and reinsurance marketplace, and has set out specific actions and commitments to align with the goals of the Paris Agreement. We are actively involved in constructive engagement on the issue of climate change and continue to explore the ways in which Lloyd’s can support a responsible transition.
To enable the market to support their customers as they transition their businesses away from fossil fuels, the new standards Lloyd’s have set for the market are targeted and phased. We have asked managing agents to no longer provide new insurance cover for thermal coal-fired power plants, thermal coal mines, oil sands or new Arctic energy exploration activities from 1 January 2022. The target date for phasing out the renewal of existing insurance cover for these types of businesses is 1 January 2030.
However, environmental campaigners are looking for swifter action, particularly in relation to the controversial Adani Carmichael coal mine in Australia. While the ten top Lloyd’s insurers have already ruled out underwriting the mine, Lloyd’s has resisted setting a policy that would exclude other insurers in its marketplace insuring the mine.
Photograph: Henry Nicholls/Reuters
Wizz air to fly 60%-80% of 2019 levels this summer
In a sign of spreading optimism, Wizz Air plans to fly between 60% and 80% of 2019 levels this summer, as the travel situation is expected to improve on the back of mass vaccination campaigns across Europe, but with some Covid-19 restrictions still in place.
The Hungarian airline’s chief executive Jozsef Varadi made the comment at a virtual aviation conference today.
Updated
Market summary
On the markets, stocks continue to slide, amid a surge in coronavirus infections in India and Japan, and fears over the impact of mooted capital gains tax hikes in the US.
Japan has declared a state of emergency in Tokyo, Osaka and two other cities, in an attempt to combat a jump in infections three months before the Tokyo Olympics is due to open.
You can read more on our coronavirus live blog here:
- UK’s FTSE 100 down 0.4%, or 27 points, at 6,911
- Germany’s Dax down 0.3%, or 47 points, at 15,273
- France’s CAC down down 0.1%, or 6 points, at 6,260
- Italy’s FTSE MiB down 0.2%, or 55 points, at 24,341
Bitcoin has tumbled below $50,000 for the first time since early March and other cryptocurrencies also sold off, haunted by fears that Biden’s tax plans will hold back investment in digital assets. Bitcoin fell 6.8% to $48,166 while small rivals Etherum lost 8.6% to $2,200 and XRP slumped 10%.
Bit of a wild ride for Coinbase so far - but then, does that surprise anyone?
— Abhinav Ramnarayan (@abhinavvr) April 23, 2021
BTC now below the 50k mark. $COIN pic.twitter.com/ZbZ9JgheiT
Oil prices reversed earlier gains and Brent crude is now down 0.3% at $65.22 a barrel, while US light crude has slipped to $61.4 a barrel.
Coal protest at Lloyd's HQ
At the Lloyd’s headquarters in the City of London, 12 climate activists from Insurance Rebellion (a new umbrella group of various environmental movements) used a tipper truck to dump a large pile of fake coal – black rubble – to block the main entrance to the building this morning. Police arrested two people dressed as builders for obstruction of the highway.
At the London insurance market, specialist underwriters and insurance companies, grouped together as syndicates, operate globally, insuring around 40% of the global energy market, including fossil fuels.
Harriet, 28, from Insurance Rebellion, said:
Every day Lloyd’s continues to insure fossil fuel projects we move one step closer to climate breakdown. They are complicit in the destruction of our planet, causing millions of people’s homes to be flooded, burnt to the ground in wildfires, and reclaimed by rising sea levels. Fossil fuel companies can’t run without insurance, so let’s stop insuring them.
The campaigners want to highlight Lloyd’s support for the world’s polluting projects – coal mines, including the highly controversial Adani Carmichael coal mega-mine in Australia. Protesters placed a #Stop Adani sign next to the fake coal.
The ten largest Lloyd’s insurers have ruled out underwriting the Adani Carmichael coal mine, with Tokio Marine Kiln the latest insurer to announce it would abandon “any future underwriting” of the project. However, Lloyd’s has resisted putting in policy that would exclude other insurers in its marketplace insuring the mine, Insurance Rebellion said.
Lloyd’s has been contacted for comment. It has taken some action, setting a market-wide policy in December to stop new insurance cover for coal, oil sands and Arctic energy projects by January 2022, and to pull out of the business altogether by 2030.
However, protesters are calling for more immediate measures, to stop the Adani coal mine going ahead. Hayley Sestokas, an Australian organiser with Frontline Action on Coal, said:
Adani is building its mine on stolen land. The Wangan and Jagalingou people have said no to Adani four times. Australia is already the world’s biggest exporter of coal. If the Galilee Basin is opened up, this would double our output at a time when the world desperately needs to move away from coal to curb runaway climate change. That’s why people from all over Australia are putting their bodies on the line to resist the building of this mine. Lloyd’s need to stop insuring this deadly project. It’s great to see people taking action in London today.
Combined with the strong PMI figures, the bounce in retail sales bodes well for the British economic recovery in coming months.
Dean Turner, economist at UBS Global Wealth Management, says:
With all sectors showing an improvement relative to March, we believe this points to further strength in the economy in the months ahead.
As today’s retail sales numbers signal, consumers and firms stand ready to unleash some of the pent-up demand which has been accumulated in recent months. Encouragingly, the outlook for the labour market continues to improve, with the surveys signalling the fastest rate of job creation since 2017. The news on prices is consistent with the ongoing rise in inflation that we are likely to see in the months ahead. In our view, this will not concern policymakers at the Bank of England too much, but will likely keep them in a hawkish mood.
Ahead of the Bank of England’s meeting in a fortnight’s time, we now have another datapoint confirming that the UK economy is continuing its bounce back. We expect that the Bank will show modest uplift in their growth outlook, which is likely to keep them in a hawkish mood. This, along with the strong recovery, should continue to support sterling, which we expect to trade higher against the euro and US dollar as the year progresses.
Updated
Here our story on UK retail sales, which jumped 5.4% in March from the previous month, as Britain’s consumers started to spend more freely even before lockdown restrictions were eased.
People bought more clothes to spruce up their spring wardrobes, went to butcher’s and bakeries at Easter time and purchases plants and garden equipment. There was also notable increase at medical goods retailers, as older people bought mobility equipment such as rollators as they ventured outside more after being vaccinated.
Here is some instant reaction from Rhys Herbert, senior economist at Lloyds Bank.
We now seem to be seeing the first evidence of the release of the pent-up demand that was built up over the many months of lockdown as restraints begin to be lifted.
Rising consumer confidence data suggest that those who have been forced to save during lockdown are now eager to get out there and start spending. Household consumption has, after all, traditionally been the main engine of the UK economy.
Businesses may be more cautious with their spending plans, though the investment incentives laid out in last month’s budget, along with an improving global economy, should help to ensure that they too make a contribution to the economy’s rebound in the months to come.
With the number of people vaccinated rising, this post-lockdown upturn should hopefully be more sustained than the previous ones. That said, the lingering concern remains that a vaccine-resistant Covid-19 variant could stymie the nascent recovery.
UK businesses grow at fastest rate since 2013 – PMI
Looser pandemic restrictions resulted in the fastest UK private sector growth in April since late 2013, according to the flash estimate from IHS Markit.
- Flash UK Composite Output Index Apr: 60.0, 89-month high (Mar final: 56.4)
- Flash UK Services Business Activity Index Apr: 60.1, 80-month high (Mar final: 56.3)
- Flash UK Manufacturing Output Index Apr: 59.1, 8-month high (Mar final: 56.6)
- Flash UK Manufacturing PMI Apr: 60.7, 321-month high (Mar final: 58.9)
April data compiled by IHS Markit and CIPS showed a strong revival in UK private sector output after the downturn seen at the start of 2021 during the full national lockdown.
Moreover, for the first time since the Covid-19 pandemic began, service activity growth outperformed manufacturing production. This was largely due to a boost from easing government stringency measures regarding some consumer services and non-essential retail in England and Wales from mid-April, with Scotland and Northern Ireland set to follow similar reopening paths by the end of this month.
Bitcoin tumbles on Biden tax plans
Bitcoin and other cryptocurrencies have tumbled, with Bitcoin dropping to below $48,000 this morning, amid fears that US president Joe Biden’s plan to raise capital gains taxes will hold back investment in digital assets. This means Bitcoin is down by a quarter from last week’s all-time high.
Bitcoin surged to a record high of $64,895 on 14 April, the day of the launch of the US’s largest cryptocurrency exchange, Coinbase, on Wall Street’s tech-heavy Nasdaq stock exchange.
At the moment, the world’s best-known cryptocurrency is trading at $48,076, down 7% on the day. It’s on track for a 15% loss this week – but is still up 65% since the start of the year, after a strong rally.
Deutsche Bank analyst Jim Reid says:
The cryptocurrency came under fresh pressure on the Biden tax headlines.
Neil Wilson, chief market analyst at Markets.com, adds:
The low tested several times in February at $44,000 is the big support. Basically, it seems to have been bid up on a lot of speculation (even more than usual) ahead of the Coinbase IPO and all this froth has evaporated like a lot of hot air.
There has also been a cluster of regulatory reports and rumours that point to a clampdown and tighter regulation. JPMorgan analysts led by the closely-followed Nikalous Panigirtzoglou say the rollover in prices has been led by a steep liquidation in speculative futures positions. “Momentum signals will naturally decay from here for several months, given their still elevated level,” he says.
Meanwhile, an Australian computer scientist who claims he created bitcoin is taking legal action in the United Kingdom, which could force the court to rule on whether he is indeed the cryptocurrency’s inventor.
London’s high court this week allowed Craig Wright’s lawyers to pursue the operator and publisher of the bitcoin.org website, called Cobra, over what they say is copyright infringement, according to documents filed in court seen by Reuters.
Updated
Here is our full story on the UK public finance data. The UK government was forced to borrow a peacetime record of £303bn to combat Covid-19 in the first full financial year of the crisis but the total was lower than originally feared, writes our economics editor Larry Elliott.
Government debt – borrowing that has accumulated over the years – stood at £2.14tn at the end of March, almost 98% of national income.
Chris Williamson, chief business economist at IHS Markit, says:
In a month during which virus containment measures were tightened in the face of further waves of infections, the eurozone economy showed encouraging strength. Although the service sector continued to be hard hit by lockdown measures, it has returned to growth as companies adjust to life with the virus and prepare for better times ahead.
The manufacturing sector is meanwhile booming. Pent-up spending, restocking, investment in new machinery and growing optimism about the outlook have all helped fuel a further record surge in both output and new orders.
The steep rise in demand for raw materials is continuing to lead to unprecedented supply chain delays, which are in turn driving up firms’ costs at the fastest rate for a decade. Consumer price inflation may well rise sharply in coming months as a result, though the extent of the rise will be dependent on the strength of demand and the supply situation, both of which remain highly uncertain at the moment.
Eurozone enjoys record manufacturing boom
In the eurozone as a whole, business activity picked up to the fastest growth rate since July thanks to a record expansion in manufacturing production and the first growth in the service sector since last August.
The headline IHS Markit eurozone composite PMI rose from 53.2 in March to 53.7 in April, according to the preliminary ‘flash’ reading. Output has now risen for two months after four months of decline, with the latest expansion the second-largest recorded since September 2018.
- Flash Eurozone PMI Composite Output Index at 53.7 (53.2 in March). 9-month high.
- Flash Eurozone Services PMI Activity Index at 50.3 (49.6 in March). 8-month high.
- Flash Eurozone Manufacturing PMI Output Index at 63.4 (63.3 in March). Record high (since June 1997).
- Flash Eurozone Manufacturing PMI at 63.3 (62.5 in March). Record high (since June 1997).
Eurozone business activity continued to rise sharply in April, according to the latest PMI data. The increase was underpinned by a record expansion in manufacturing output, while services activity grew for the first time since last August. Read more: https://t.co/2abC9uVpS0 pic.twitter.com/FWyogKlNAI
— IHS Markit PMI™ (@IHSMarkitPMI) April 23, 2021
Germany sees slowdown in private sector growth
Germany, meanwhile, has seen a slowdown in growth across its private sector in April, with services activity stalling and the upturn in manufacturing production partly held back by supply shortages, IHS Market reported.
- Flash Germany PMI Composite Output Index at 56.0 (Mar: 57.3). 2-month low.
- Flash Germany Services PMI Activity Index at 50.1 (Mar: 51.5). 2-month low.
- Flash Germany Manufacturing Output Index at 67.7 (Mar: 68.9). 2-month low.
- Flash Germany Manufacturing PMI at 66.4 (Mar: 66.6). 2-month low.
Even so, the pace of job creation gathered speed, driven largely by increased efforts by goods producers to expand capacity as well as expectations of a rise in future activity.
Phil Smith, associate director at IHS Markit, says:
The third wave of the pandemic has stifled progress in Germany’s service sector, with April’s flash PMI data showing activity close to stalling following the return to growth at the end of the first quarter. The country’s manufacturing sector remains on a strong footing, though even here the data show growth being held back by supply problems.
The imbalance of demand and supply across manufacturing supply chains continues to drive up businesses’ costs, which are now rising at the fastest rate for more than a decade. However, while factory gate prices are increasing rapidly in line with strong demand for goods, services firms remain more cautious with their pricing, which somewhat limits the spillover to overall consumer prices.
There was good news on the employment front in April, as efforts by manufacturers in particular to expand capacity drove the fastest increase in private sector workforce numbers for two-and-a half years.
Latest PMI data pointed to the first expansion of French private sector activity since last August. The upturn was predominantly driven by strong manufacturing growth, but services activity also increased for the first time in eight months.
— IHS Markit PMI™ (@IHSMarkitPMI) April 23, 2021
Read more: https://t.co/c4EbilRuPZ pic.twitter.com/NuCd0ebTQc
France posts first growth in business activity since August – PMI
France has recorded its first expansion in business activity in April since August, despite the country’s lockdown, according to the PMI flash estimate.
- Flash France Composite Output Index at 51.7 in April (50.0 in March), 9-month high
- Flash France Services Activity Index at 50.4 in April (48.2 in March), 8-month high
- Flash France Manufacturing Output Index at 57.6 in April (58.3 in March), 2-month low
- Flash France Manufacturing PMI at 59.2 in April (59.3 in March), 2-month low
Although modest overall, the pace of expansion was the quickest for nine months, following a period of subdued performance amid Covid-19 restrictions, the closely-watched survey from IHS Markit suggests.
At the sector level, a fresh increase in services activity outweighed a slight slowdown in manufacturing growth. That said, the rise in output at goods producers was far stronger than that at their service sector counterparts. The expansion at services firms was the first for eight months but only marginal overall.
The Institute for Fiscal Studies, a highly respected think tank, has looked at the rise in UK government borrowing to a peacetime record.
Isabel Stockton, research economist at the IFS, says
Today’s figures confirm that government borrowing reached a peacetime record in the financial year that ended last month, with an initial estimate of borrowing of £303 billion, or almost 15%% of national income. The increase on the pre-pandemic forecast is unprecedented and highlights the extraordinary impact of the pandemic on government revenues and spending. We can also expect this estimate to be revised up, perhaps quite significantly, as the non-repayment of government backed loans by businesses is incorporated.
This has increased national debt to £2.14 trillion or almost 100% of national income. With the lowest interest rates in history this is currently perfectly manageable, but rising interest rates could create difficulties for the government finances. This is one of many uncertainties which the chancellor will have to manage over the coming years.
While the most recent budget plans suggest a return to the government borrowing only to pay for investment spending by 2025–26 this depends on a swift recovery, big tax rises and very tight spending. There is a good chance that at least one of these will not happen.
European stocks have opened lower, as expected, after reports of potential capital gains tax hikes in in the US spooked markets. Rising Covid-19 infections in India and Japan, which could delay the global economic recovery, have also weighed on markets this week.
- UK’s FTSE 100 down 17 points, or 0.26%, at 6,920
- France’s CAC down 0.1%
- Italy’s FTSE MiB down 0.4%
- Spain’s Ibex down 0.3%
Lisa Hooker, consumer markets leader at the consultancy PwC, says:
Clothing sales, while still over 40% lower than pre-pandemic levels, continued their strong bounceback, with a 17.5% improvement compared with February, suggesting that consumers are cautiously looking forward to the end of lockdown with new outfits ready for newly permitted social events.
The increase in petrol sales also reflects the ending of the stay-at-home order and greater willingness to travel, which is a promising sign as the country continues to open up from lockdown.
However, much though these figures will give cheer to the whole sector, retailers will be hoping that these positive signs translate into a sustained return to the physical stores as they reopen across the UK over the course of April. The real test of whether pent-up demand can be turned into actual sales will come with next month’s figures.
Paul Dales, chief UK economist at Capital Economics, sums up this morning’s UK data:
March’s strong rise in retail sales showed that the economy made a fair bit of progress even before non-essential retailers reopened in April. And the further rise in public borrowing in March rounded out the worst year for the public finances since 1947.
Sales will probably leap further in April when non-essential shops reopened... Overall, we think a surge in retail sales in April will mark the start of a rapid economic recovery that may mean the extra tax hikes and spending cuts that most fear may not materialise.
Turning to the public finance numbers, which showed borrowing rising to a whopping £303.1bn (14.5% of GDP) in the year to March, he notes:
That was some £24bn lower than the forecast the Office for Budget Responsibility made just a month ago on a like-for-like basis. And if we are right in thinking the economic recovery will be faster and fuller than the OBR anticipates, borrowing will probably fall more quickly than most expect.
Introduction: UK retail sales soar, public borrowing at March record
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Retail sales volumes in the UK jumped 5.4% in March from the previous month, as coronavirus restrictions began to ease. This is up from February’s 2.2% growth, and far stronger than the 1.5% gain expected by the City.
Figures just released by the Office for National Statistics showed that compared with March last year, sales were up 1.6%. However, over the three months to March, sales volumes fell 5.8% on the previous three months, due to the latest lockdown.
Some travel and social distancing restrictions were lifted in England at the end of March, leading to higher consumer spending, the ONS said. The strongest growth in March was in clothing stores (up 17.5% on the month), other non-food stores (up 13.4%) and petrol stations (up 11.1%), the first monthly growth since October.
Auction houses had a good month as did medical goods retailers, which enjoyed sales growth of 29.4%, as retailers reported an increase in the purchase of mobility equipment from older consumers who were venturing out more after being vaccinated against coronavirus. Garden centres and retailers of plants and flowers reported monthly growth of 7.4%.
Food stores posted a 2.5% gain in sales, with butchers and bakers doing well during the Easter period when restaurants and cafes remained closed.
Our latest data show that retail sales increased by an estimated 5.4% in March 2021 compared with February 2021 https://t.co/IbqC4EwLbb pic.twitter.com/7gEU0XyZPs
— Office for National Statistics (ONS) (@ONS) April 23, 2021
The ONS also released public finance figures. The government borrowed £28bn in March, £21bn more than in March 2020 – and the highest March borrowing since monthly records began in 1993.
In the year to March, tax receipts totalled £523.6bn, down £34.2bn on the previous year, as the VAT take, business rates and fuel duty were down, while government spending soared.
Central government bodies are estimated to have spent £941.7bn on day-to-day activities, £203.2bn more than in 2019-2020; this includes £78.2bn expenditure on coronavirus job support schemes.
Public sector net borrowing was £303.1 billion in the financial year ending March 2021 – £246.1 billion more than the previous year.
— Office for National Statistics (ONS) (@ONS) April 23, 2021
This was 14.5% of GDP, the highest proportion since the end of World War II, when it was 15.2% in 1945 to 1946 https://t.co/p64qO7vJ8E pic.twitter.com/pNCqMeQA74
European stock markets had another good day yesterday, however the recovery still has some way to go before reversing the losses seen earlier in the week. US stocks sold off, led by the Nasdaq, after reports that president Joe Biden is looking to increase the rate of capital gains tax to 39.6% for Americans earning $1m a year or more, up from the current rate of 20%, while some wealthier individuals could see their rates go up to 43.4%.
Michael Hewson, chief market analyst at CMC Markets UK, says:
While one could argue that the prospect of higher taxes is never welcome, and a doubling of a key tax rate even more so, the likelihood of anything of this nature passing through an evenly split Congress, lies somewhere between slim and none, however in these highly uncertainty times it doesn’t take much to spook a little bit of profit taking, in what has already been a very choppy week. The reality is taxes may rise but certainly not by as much being touted.
European markets are expected to open slightly lower this morning. In Asia, Japan’s Nikkei closed 0.57% lower while Hong Kong’s Hang Seng was up 0.66%.
The Agenda
- 8.30am BST: France Markit Manufacturing / Services / Composite PMI Flash for April
- 8.30am BST: Germany Markit Manufacturing / Services / Composite PMI Flash for April
- 9am BST: Eurozone Markit Manufacturing / Services / Composite PMI Flash for April
- 9.30am BST: UK Markit Manufacturing / Services / Composite PMI Flash for April
- 2.45pm BST: US Markit Manufacturing / Services / Composite PMI Flash for April
- 3pm BST: US New home sales for March
- 3.30pm BST: ECB president Christine Lagarde speech
Updated
