The economic impact of the pandemic was felt either side of the Atlantic today as US borrowing hit record highs while Britain’s powerhouse services sector slumped to historic lows.
The US Treasury department said that it wants to borrow a record $3 trillion in the second quarter to pay for rescue packages, including health funding and paying wages, related to the crisis. The figure is five times the previous quarterly record and total US government debt is near $25 trillion as Donald Trump’s administration tries to prop up the world’s biggest economy ahead of an expected recession.
The spending splurge equates to about 14% of the economy. It comes as the UK and US today kicked off two weeks of post-Brexit trade talks via video conference. Further talks are expected roughly every six weeks.
In Britain, the powerhouse services sector shrank at the fastest pace last month since records began in 1996. The IHS Markit’s Purchasing Managers Index fell to just 13.4 — a score over 50 indicates growth.
“The downturn in the UK economy during the second quarter of 2020 will be far deeper and more widespread than anything seen in living memory,” said Tim Moore, a director at IHS Markit. IHS predicted GDP could contract more than 7% this year.
But Simona Gambarini, economist at Capital Economics, said: “If things continue to improve — the number of cases fall and governments reopen economies to some extent — then, while this might be a very deep recession, it might also be a very short one, so there is reason to think that stock prices will look past a short period of very bad economic growth.”
New car sales slumped by 97% in April to the lowest level of any month since February 1946 when Britain was still trying to rebuild after wartime destruction. Just 4321 vehicles were sold, mainly to fleet operators and some frontline key workers, the Society of Motor Manufacturers and Traders said.
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The dire economic picture will ratchet up pressure on the Bank of England. The central bank will publish its latest interest rates decision on Thursday. It is not expected to move the benchmark after twice cutting in March but Governor Andrew Bailey may signal he’s willing to buy more debt to keep borrowing costs from rising.
