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Bank of England will ‘closely’ monitor credit to economy amid coronavirus crisis

The Bank of England’s Financial Policy Committee (FPC) said it will “monitor closely” the credit conditions facing the economy amid the coronavirus pandemic, and stands ready to take further actions if needed.

In minutes from recent meetings released this morning, the Committee said it “stands ready to take any further actions deemed appropriate to support UK financial stability”.

It described the “nature and global impact” of the shock caused by coronavirus and the speed with which it has spread as “unprecedented in recent history”.

The FPC said it “judges that major UK banks are well able to withstand severe market and economic disruption”, having “built up the resilience of the UK financial system over recent years”.

It also deems “household vulnerability is considerably lower than before the financial crisis”.

The Bank of England has twice slashed interest rates in response to the coronavirus outbreak, with the Bank’s main rate reaching a record low of 0.1 per cent.

The BoE has also launched a £200bn money-printing programme in a bid to calm panicked markets and support the economy.

Its FPC and Monetary Policy Committee (MPC), has also introduced measures to reduce financial stability risks associated with the pandemic and to keep credit flowing into the economy.

These include cutting the UK’s countercyclical capital buffer rate to zero per cent of banks’ exposure to UK borrowers, in the hope this would release up to £190bn of bank lending to businesses. The rate had been at one per cent and was due to reach two per cent by the end of the year.

Last week, the BoE cancelled this year’s stress tests of major banks in Britain and pushed back the implementation of new capital rules to help banks focus on supporting customer lending during the pandemic.

The FPC said today that the UK’s major banks have Tier 1 capital levels — a key measure of financial strength — over three times higher than before the global financial crisis.

“Businesses and households should be able to turn to the banking system to meet their need for credit to bridge through this period of economic disruption.”

It added that it “will monitor closely the response of banks to these measures as well as the credit conditions faced by UK businesses and households more generally”.

By Anna Menin

Source: City AM

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Coronavirus measures to have ‘devastating’ impact on UK hospitality sector

The UK’s pubs and restaurants have called on the government to offer urgent financial help after Boris Johnson advised people to avoid social gatherings, in what could be a death knell for London’s pubs, restaurants and leisure businesses.

The prime minister urged the public to practice “social distancing” by staying at home rather than eating out or going to the pub or theatre in a bid to delay the spread of the coronavirus.

He stressed that Londoners in particular should be cautious about attending venues or small gatherings as the spread of the disease is around two weeks more advanced in the capital.

Johnson stopped short of forcing pubs and restaurants to close, although many businesses are already struggling with a sharp decline in footfall and will have to lay off staff in the coming days.

“This is catastrophic for businesses and jobs,” UK Hospitality chief executive Kate Nicholls said.

“The government has effectively shut the hospitality industry without any support, and this announcement will lead to thousands of businesses closing their doors for good, and hundreds of thousands of job losses. “

Emma McClarkin, chief executive of the British Beer & Pub Association, added that the coronavirus outbreak has “now impacted pubs with devastating effect”.

“The very existence of some pubs is now at threat,” she said.

Hospitality venues in London had already reported a 47 per cent drop in year on year footfall on Sunday and some firms are around a month away from running out of cash.

Jonathan Downey, the chief executive of street food market operator London Union said the decision to advise customers to stay at home rather than close venues is a “passive aggressive lockdown”.

He said some venues would be forced to close due to a lack of visitors but would not be able to claim on insurance without government intervention.

“It strikes me that they are just not listening, I have lost faith after that press conference. I understand how they are saving lives, but I don’t understand how they are planning to save livelihoods.”

Meanwhile, all Society of London Theatre venues including the Royal Opera House, the National Theatre, Shakespeare’s Globe and most West End theatres announced they would close immediately.

The hospitality and leisure sector has called on the government to step in urgently to relieve some of the financial pressure on businesses, including business rates cuts, rent holidays and covering staff salaries.

McClarkin added: “The Government must urgently step in and provide a package of support for our sector which employs nearly a million people in all parts of the UK.

“Urgent measures to ensure cash flow and cost reduction is of absolute necessity. Government action now can save jobs and save pubs.

“Support for pubs now is an investment in the long-term future of communities across the UK and without it we risk losing our community assets forever. The Government needs to give clear instructions and detail on the support package to rescue the sector and hundreds of thousands of jobs.”

By Jessica Clark

Source: City AM

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Can the chancellor protect the UK economy from coronavirus?

You have to feel sympathy for Rishi Sunak.

Suddenly appointed as chancellor after the unexpected resignation of Sajid Javid, he found himself with just weeks to put together the first Budget of the Boris Johnson era.

Any chance he could simply copy Javid’s homework was then dashed when the former chancellor gave the Times chapter and verse on his original plans.

And then, even as Sunak was putting pen to paper, the coronavirus outbreak suddenly became the only show in town.

Sunak’s job, as chancellor, is not just to find the money to help the health service cope with the outbreak, or to fund emergency work on a vaccine. It is to minimise the damage to the economy.

The problem is that no one knows how bad things will get. A short, sharp shock, from which we swiftly recover? A downturn on a par with — or even exceeding — that of 2008? You can find both views being expounded, with greater or lesser confidence.

So how best to prepare? Discussing this at the Centre for Policy Studies think tank, we kept coming back to our previous work on preparing for a no-deal Brexit.

Both involve what economists call a “supply shock”, in which certain goods become either more expensive or outright unavailable.

But the real economic damage comes if the supply shock turns into a demand shock: if that disruption to trading flows and product availability leads people and businesses to take fright, hoard cash, and stop spending, causing Britain’s economic engine to sputter to a halt.

That is why many of the remedies that we proposed for a no-deal Brexit, in the form of a limited stimulus package to support business and consumers, are similar to those being discussed now. Indeed, the government has been open about its no-deal planning being repurposed to tackle this latest crisis.

But the problem now is far more real than the no-deal panic ever was. People are already changing their behaviour, in ways large and small. Working from home. Petitioning for schools to close. Hoarding loo roll.

If you’re running a restaurant or a theatre, your takings will be dropping vertiginously. Air travel has been particularly hard hit: if airlines didn’t have to put flights in the air to keep their landing slots, we’d be seeing an awful lot more cancellations.

And then, of course, there are the countless businesses which are finding out how surprisingly dependent they are on the Chinese supply chain. One irate bride-to-be tells me that wedding dress deliveries are backlogged for weeks.

The government, therefore, has two intertwined priorities. The first is to ensure that consumers and businesses retain the confidence to keep spending and working.

This, of course, will be affected by how severe the coronavirus epidemic becomes: if the streets of London start resembling a zombie movie, no amount of upbeat Bank of England announcements about monetary easing are going to be of much use.

The second is to ensure that businesses do not go to the wall, leading people to lose their jobs through no fault of their own. In our just-in-time world, many firms are operating without the reserves — whether in terms of products or cash — to make it through a prolonged shutdown.

Small businesses are particularly vulnerable. That is why we urged the chancellor yesterday to make sure that credit is available to tide such companies over, along with other measures.

It was striking — and alarming — to see Rupert Harrison, George Osborne’s key lieutenant at the Treasury, warn that the measures taken in the wake of the 2008 crisis, such as the Funding for Lending scheme, might not be enough this time.

If things get worse, more will need to be done. Giving companies relief on business rates or employee national insurance contributions could be one way to ease the pressure.

It is true that the British state is already too interventionist, in all sorts of ways. But in a situation like this, the priority is to get the country — and the economy — through the worst of it.

With luck, things will blow over sooner than we currently fear. But luck isn’t something we can count on. Instead, we need the government — and especially the Treasury — to display a combination of flexibility, sensitivity, and a willingness to respond quickly to events.

This Budget will tell us how the government intends to protect the economy from the coronavirus. But it will be far from the last word on the topic.

By Robert Colvile

Source: City AM

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UK banks announce lending support for coronavirus-hit firms

Some of the UK’s biggest banks have announced measures to help businesses and customers to cope with the economic impact of the coronavirus outbreak.

Britain’s largest high-street lender Lloyds said it would offer £2bn of loans without fees to small firms hit by the virus, and said some of the worst-affected businesses would be offered payment holidays.

In a similar vein, Barclays has informed business customers affected by the virus that they can have a 12-month repayment holiday – a period when loan repayments are waived – on existing loans over £25,000.

State-backed RBS has said borrows who have been affected by the virus can defer mortgage and loan repayments by up to three months, and will also waive various other fees.

None of the banks laid out how badly its customers would have to be affected to qualify for the lending support, however.

An RBS spokesperson said: “We will look to understand each customer’s situation on a case-by-case basis and can offer a number of options to help them manage their finances.”

The measures from lenders come as coronavirus spreads quickly throughout Europe and the UK, having broken out in China in December. The virus has killed five people in Britain, from 319 confirmed cases.

Businesses across the country have told staff to work from home, while restaurants and other businesses have reported lower footfall as people stay at home.

Chancellor Rishi Sunak is expected to unveil spending measures to support the economy during the outbreak when he gives his Budget tomorrow.

Incoming Bank of England governor Andrew Bailey has said that some kind of “supply-chain finance” for businesses from the government and Threadneedle Street is likely.

David Oldfield, group director of commercial banking at Lloyds, said firm-owners are “worried what the outbreak might mean for their business and with no knowledge of how or when they might be affected”.

He said Lloyds was making extra lending available to help firms manage “temporary interruptions to their business and to their cashflow”.

By Harry Robertson

Source: City AM

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Experts flag impact of Brexit and coronavirus on UK economy

BREXIT-related factors are still being flagged by UK companies as a cause of lost business from overseas, a senior economist has declared.

Chris Williamson, chief business economist at IHS Markit, underlined this drag as he noted the Chartered Institute of Procurement & Supply’s services, manufacturing and construction surveys pointed so far to UK economic growth of 0.2 per cent in the first quarter.

The latest services survey from CIPS, compiled by IHS Markit and published yesterday, showed a slowdown in growth in this key sector in February. The services business activity index fell from 53.9 in January to 53.2 on a seasonally adjusted basis but remained above the 50 no-change mark.

Some services companies flagged an impact on bookings from overseas visitors resulting from the COVID-19 coronavirus outbreak. They also highlighted delays to new projects among clients in Asia.

CIPS said: “There were a number of reports citing a negative impact on sales from the coronavirus outbreak, particularly to clients in overseas markets.”

In spite of the coronavirus outbreak, the survey shows UK services companies’ overall optimism about prospects for increased business activity on a 12-month horizon rose in February to its highest since March 2015.

Highlighting the continuing influence of Brexit, Mr Williamson said: “While Brexit-related worries have moderated significantly since late last year, Brexit uncertainty continues to dampen sentiment, with firms concerned about upcoming EU trade negotiations. Moreover, analysis of reasons cited by companies for changes in export orders indicates that Brexit-related factors continue to be seen as a cause of lost overseas business on balance.”

The UK left the EU on January 31, and is now attempting to secure a future comprehensive free-trade deal with the bloc before the transition period ends on December 31.

Howard Archer, chief economic adviser to the EY ITEM Club, noted the think-tank had trimmed its forecast of first-quarter UK growth from 0.4% to 0.3% because of some anticipated negative impact from the coronavirus outbreak.

This projected 0.3% quarterly growth rate, although weak by historical standards, would be an improvement from stagnation in the final three months of last year.

Mr Archer noted the effect on activity from this outbreak was likely to be “significantly more marked” in the second quarter, but expressed hopes it would be temporary.

He said: “A particular concern for the economy is business willingness to commit to investment is likely to have taken a renewed hit from the hit to the domestic and global economies from coronavirus and it may remain limited further out due to significant concerns and uncertainties over the UK-EU relationship.”

By Ian McConnell

Source: Herald Scotland

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Post-Brexit UK-US trade deal could boost economy by 0.16%, Government predicts

A post-Brexit trade deal with the US is estimated as having the potential to grow the UK economy by 0.16%, according to the Government’s negotiating objectives.

The £3.4 billion yearly increase outlined in the document published on Monday was predicted under the best-case scenario where the UK eliminates import tariffs with the States.

But if only “substantial tariff liberalisation” is achieved, then the increase estimated in 15 years was put at 0.07%, or £1.6 billion, in the Governments’ preliminary assessment.

The NHS is not, and never will be, for sale to the private sector, whether overseas or domestic

Government negotiating objectives document

Critics pointed towards estimates of a potentially larger hit to the economy caused by Brexit, and warned the blow will “pale in comparison to the benefits”.

Prime Minister Boris Johnson has committed to obtaining a Canada-style deal with the EU, which previous Treasury analysis suggested could shrink the UK economy by 4.9%.

The best scenario outlined on Monday was where a “deeper trade agreement” with “full tariff liberalisation” and a 50% reduction in non-tariff measures is struck.

Under this, real wages for workers were expected by the Department for International Trade (DIT) to increase by 0.2%, or £1.8 billion.

The scenario predicting a smaller boost to the economy was based on a 25% reduction of non-tariff measures and a “substantial tariff liberalisation”.

Labour’s shadow trade secretary Barry Gardiner said “we stand to lose more than we gain” under the Government’s proposals, which he said are “likely to cost us dearly”.

“The Government used to talk about ‘the sunlit uplands’ of their plans for the future. Well these uplands look pretty rocky and there’s not much sun,” he added.

Liberal Democrat international trade spokeswoman Sarah Olney accused the PM of being “seemingly hellbent on risking UK prosperity”.

“Boris Johnson has repeatedly claimed that negative impacts of Brexit will pale in comparison to the benefits,” she said.

“But today’s analysis is clear: the gains from the best-case trade deal with Donald Trump will not come close to outweighing what we expect to lose from leaving the EU.”

Treasury analysis predicted that a trade deal with the EU similar to Canada’s would damage the UK economy by 4.9% of GDP by 2035, compared with remaining in the bloc.

Leaving without a trade deal in place was estimated in the November 2018 study at having a 7.6% blow.

Labour MP David Lammy, a prominent Remain voice in the party, cited the analysis and said: “In what planet does this boost wages or create jobs for anyone except the Tory Cabinet?”

Meanwhile, the UK spelled out in the 184-page document that the NHS will not be on the table during free trade agreement talks with Washington.

UK negotiators would work to ensure that measures are in place to prevent hikes in medicine prices for the NHS, as the Government said the service “will not be on the table”.

“The NHS is not, and never will be, for sale to the private sector, whether overseas or domestic,” the document said.

The Government acknowledged public concerns about US meat, particularly chlorine-washed chicken and hormone-fed beef.

And the document committed negotiators to “ensure high standards” and protections were maintained for consumers and workers, while “not compromising” on environmental, animal welfare and food standards.

Trade Secretary Liz Truss maintained a tough stance ahead of the negotiations, warning the UK will “strike (a) hard bargain” and is prepared to “walk away if we need to”.

The PM had pledged to “drive a hard bargain to boost British industry” in the talks, which will take place alongside negotiations with the EU.

Talks in Brussels got under way on Monday when the PM’s Europe adviser David Frost met EU chief negotiator Michel Barnier.

Negotiations with Washington were expected to last a number of years and, though no start date had been set, they were anticipated to get under way by the end of the month.

Source: Express & Star

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BOE’s Haldane Says Brexit Uncertainty Lifting From U.K. Economy

Most of the Brexit uncertainty that has been overshadowing the U.K. economy has lifted, although it’s too early to say business investment is fully returning, according to Bank of England Chief Economist Andy Haldane.

A “big chunk, if not all” of the uncertainty has dissipated, Haldane said in answer to questions following a speech at Bloomberg’s European headquarters in London Monday. That’s contributing to investment starting to pick up, but it’s “too early to declare victory,” he said.

Political tensions and a lack of clarity on Britain’s future relationship with its biggest trading partner has been weighing on growth and held businesses back from spending on capital that could bolster the country’s lackluster productivity. Recent survey data, however, has started to show some signs that the economy is beginning to bounce back.

Globally, the economy has grown stronger since the financial crisis more than a decade ago, Haldane said. Banks’ balance sheets are in better shape and he doesn’t seen the buildup of new asset bubbles. While trade has been hurt by U.S.-China tensions, he doesn’t predict a “wholesale retrenchment” of globalization.

Source: Investing

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Recovering factories keep UK economy on track in February – PMIs

British businesses kept up a solid rate of growth in February as factories posted the fastest rise in output for 10 months, despite ripples from China’s coronavirus outbreak affecting supply chains, a business survey showed on Friday.

The ‘flash’ early readings of the IHS Markit/CIPS UK Purchasing Managers’ Index (PMI) showed the expansion of Britain’s vast services sector slowed slightly this month, but this was cancelled out by an unexpected upturn in manufacturing.

Britain’s performance bettered the euro zone’s for the second month running, as the PMI suggested the world’s fifth-largest economy looked on track to grow around 0.2% in quarterly terms after it slowed to a crawl late last year.

The composite PMI, which combines manufacturing and services indexes, held steady at 53.3 in February, jointly the highest reading since September 2018 and beating the consensus forecast of 52.8 in a Reuters poll of economists.

The survey chimed with other gauges which show the economy has picked up since Prime Minister Boris Johnson’s election victory in December, even though the level of the PMI remains below its long-run average.

“The recent return to growth signalled by the manufacturing and services PMIs provides a clear indication that the UK economy is no longer flat on its back,” said Tim Moore, associate director at IHS Markit, which compiles the survey.

The manufacturing PMI rose to 51.9 in February from 50.0, its highest level since April and above all forecasts in a Reuters poll, although there were signs that the coronavirus outbreak might have an impact on production in Britain.

“Manufacturers noted that abrupt shortages of components from China had reverberated through their supply chains and led to difficulties sourcing critical inputs,” Moore said.

He cited a record deterioration in the PMI’s gauge of suppliers’ delivery times, meaning manufacturers were forced to wait much longer this month for the arrival of parts.

Delivery times increased more sharply than the previous record in September 2000, when British truck drivers blockaded petrol stations in protest at high fuel taxes.

The services PMI, which covers the bulk of British economic output, fell in February to 53.3 from 53.9, close to the Reuters poll forecast for a reading of 53.4.

“The latest survey … revealed a solid upturn in the service economy, driven by improving domestic spending and a recovery in new business enquiries since the start of 2020,” Moore said.

Reporting by Andy Bruce; Editing by Hugh Lawson

Source: UK Reuters

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UK confidence in household finances hits record high

UK households’ perceptions of their financial wellbeing rose to their highest ever levels this month in a sign of growing optimism over the UK’s economic prospects.

IHS Markit’s UK Household Finance Index (HFI) – which measures households’ overall perceptions of financial wellbeing – increased to 47.6 in February, up from 44.6 in January.

Although the index remains below the neutral 50.0 mark, meaning that people’s financial health remains under pressure, the rise suggests the conditions faced by UK households has become less challenging so far in 2020.

The Future Household Finance Index – which measures expected change in financial health over the next 12 months – also rose to 52.7 in February, from 49.6 last month, in a further sign of the UK’s positive outlook.

Joe Hayes, an economist at IHS Markit, said: “[There are] a number of developments that should keep the Bank of England doves at bay and build optimism towards the UK’s immediate economic prospects”.

He added: “Post-election survey data so far scores a fairly good chance a first quarter GDP pickup following a flat end to 2019”.

The survey showed that a falling rate of living cost inflation in February helped alleviate pressure on people’s finances, whilst perceptions of house prices rose at their strongest rate in three years.

UK households recorded a lessened degree of pessimism towards their job security during February, with the index rising (but remaining below 50.0) to a seven-month high.

Meanwhile, the rate of growth in both workplace activity and income from employment accelerated from January.

Last week the outgoing governor of the Bank of England (BoE) said that there had been a bounce in business confidence since December’s election and “to some extent a firming of consumer confidence”.

Johnson’s overwhelming victory at the polls ended three years of uncertainty over whether Britain would leave the European Union on 31 January.

Mark Futcher, head of workplace wealth at Barnett Waddingham commented: “It’s a breath of fresh air to see financial wellbeing at survey-record high. In the post-election and post-Brexit environment, people are standing on steadier ground for their financial future”.

The proportion of respondents expecting the Bank of England to cut interest rates also rose to 27 per cent, its highest since August 2016, when the bank last cut rates.

By Edward Thicknesse

Source: City AM

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UK economy registers zero growth in final quarter of 2019

The UK economy flat-lined in the final quarter of 2019, data has shown, as political uncertainty driven by Brexit and the December General Election weighed on activity.

Britain’s services sector – which makes up about 80 per cent of the economy – eked out growth of 0.1 per cent, while manufacturing production slumped 1.1 per cent quarter on quarter, the Office for National Statistics (ONS) said.

The ONS said the UK economy grew 1.4 per cent in 2019 as a whole, bettering 2018’s growth of 1.3 per cent. Over the last year, services grew 1.8 per cent but production fell 1.3 per cent in a tough year for UK manufacturers amid repeatedly delayed Brexit deadlines.

“The underlying picture for production was one of weakening throughout 2019, with nine months of the year showing negative rolling three-month growths,” the ONS said.

However, analysts are looking towards January data to give a more accurate sense of where the economy is headed, given that business sentiment and survey indicators have picked up markedly since Boris Johnson’s landslide December election win.

Firms are grateful for at least some clarity over Brexit, which officially happened at the end of last month. Expectations of an economic pick-up led the Bank of England to hold interest rates at 0.75 per cent at its last meeting.

In December, UK GDP grew by more than expected, registering a 0.3 per cent month on month expansion. This beat expectations of 0.2 per cent growth and the 0.3 per cent contraction seen in November.

The pound climbed after the data was released to stand 0.4 per cent higher against the dollar by 9.45am at $1.294.

Ruth Gregory, senior UK economist at consultancy Capital Economics, said: “While the first estimate of fourth-quarter GDP showed that the economy stagnated at the end of last year, the fourth quarter will probably prove to be the low point.”

“The expenditure breakdown painted a pretty downbeat picture, showing that business investment and net trade drove the drop in GDP, subtracting 0.1 percentage points and 0.3 percentage points respectively.”

Uncertainty remains

The weak UK GDP reading came ahead of chancellor Sajid Javid’s 11 March Budget, which will set the tone for the new Conservative administration which has pledged to boost spending.

Tej Parikh, chief economist at the Institute of Directors, said: “The UK economy ended 2019 in a funk, and despite a recent rise in optimism, businesses will be looking for a significant boost from the chancellor next month.”

Britain has entered the next phase of Brexit negotiations, and has until the end of the year to reach a “deep free-trade agreement” with the European Union. Many businesses are concerned that the tight deadline could result in the UK falling into an effective no-deal Brexit.

“This makes the Budget a crucial moment to get the economy moving,” Parikh said. “The chancellor must clear the way for entrepreneurs to create jobs and drive up productivity, by unleashing investment in start-ups, slashing business rates, and revamping our skills system.”

Other uncertainties also linger over the economy. In a worrying sign for policymakers, UK household spending, which drove growth in 2019 as unemployment plumbed record depths, slumped to a four-year low.

Chris Towner, director at risk adviser Chatham Financial, said: “The question now for the first quarter of 2020 is whether we are going to witness a bounce in activity as a reaction to the healthy majority for the more business-friendly Conservative party. Early shoots of a bounce are starting to appear.”

By Harry Robertson

Source: City AM