UK ECONOMY MAY LOOK DIFFERENT AFTER COVID-19

UK ECONOMY MAY LOOK DIFFERENT AFTER COVID-19

This week we continue to sit in the coronavirus holding pattern that’s dominated most of the summer. Lower infection rates have seen lockdown rules relaxed, but this has been followed by spikes in infection that have required a step back. So far these have been localised, and hopefully improved testing and tracing will keep it that way. This points to a longer-term problem that some industries just aren’t very Covid compatible. Bars and restaurants, for example, will be under sustained pressure until the virus is no longer a threat, and who knows how long that will be.

This is the problem hinted at by the governor of the Bank of England this week when he warned against locking the economy into its pre- coronavirus state. Eventually the furlough scheme will need to give way to the reality that some jobs are never coming back. For now, Government support is preventing high unemployment from further damaging the economy. We hope this support remains a while longer, even though the furlough scheme needs to end to allow the economy to adapt.

US: UNEMPLOYMENT REMAINS HIGH AS CORONAVIRUS RECOVERY STALLS

The coronavirus recovery is progressing slower than expected in the US, with weekly new unemployment claims above 1 million for the 20th successive week. This week the figure for new jobless claims was 1.2 million, a drop from 1.4 million

last week. This is a continuation of the downward trend seen since April, but it remains stubbornly high as the ongoing spread of coronavirus hinders business reopening. The number of continuing claims, people out of work for more than one week, has fallen from its peak of 24.9 million at the end of May but still represents around 11 per cent of the workforce or 16.1 million.

Persistently high job losses are being matched by slower new job creation. The monthly US non-farms payrolls report shows 1.8 million new jobs were created in July but this is a big drop from 4.8 million in June. Concern about unemployment and the relative strength of the US economic recovery has seen the yield on US 10-year Treasuries hit a new all-time low this week, even as the S&P 500 has continued its rise.

UK: STERLING HITS FIVE MONTH HIGH AS BOE PRESENTS POSITIVE VIEW

A relatively positive view on the UK recovery and weak US dollar has seen sterling rise to its highest value since early March. On Thursday sterling hit $1.31, and it also rose against the euro, after the Bank of England concluded its Monetary

Policy Meeting. The bank kept interest rates unchanged at 0.1 per cent and maintained the current size of its bond buying programme. It said it does not expect GDP to reach pre- coronavirus levels until the end of 2021. Robust consumer spending is expected to drive a faster recovery than it predicted back in May but the central forecast is for GDP in 2020 to be 5 per cent below 2019 levels. The bank confirmed negative interest rates are an option in its policy toolbox but said this is not something it is actively considering.

Stronger sterling has weighed on UK equity markets recently, with oil companies and miners seeing their share values fall as their overseas revenues are reduced in value by a stronger pound.

CHINA: TECH SELL-OFF AFTER US MOVES TO BAN TIKTOK AND WECHAT

Donald Trump sparked a sell-off in Chinese technology companies when he announced a US-wide ban on Chinese social media platforms TikTok and WeChat. The US president signed an executive order which will force US companies to end

all transactions with WeChat and TikTok within 45 days. TikTok has been under attack from Trump for weeks and Microsoft is currently in talks to buy it from owner ByteDance. WeChat is a social media and payments platform owned by Chinese tech giant Tencent Holdings. It currently generates very little revenue in the US but a wider ban on dealing with Tencent could be damaging.

Tencent has been one of the strongest performers in the Hang Seng index this year but its shares closed down 5 per cent today. ByteDance is a privately held company but Trump’s attack caused a wider sell-off in Chinese technology companies, with Alibaba and JD.com also seeing their share values plunge in the last trading session of the week.