UK economy plunges into recession

Bloomberg

The UK economy shrank almost 6% in March as the nation went into lockdown, plunging into what may be its deepest recession in more than three centuries.
The sharp decline is only a small part of the damage of the restrictions to control the coronavirus, which were in place for all of April and look set to endure in some form for months to come. The measures heaped misery on an already tepid economy, with the Bank of England forecasting a staggering 25% contraction this quarter.
That highlights the monumental task the government faces in restarting the economy as it begins to take small steps toward easing the lockdown. It’s extended an aid program for workers, while the central bank will probably pump even more stimulus into the economy to keep the motor running.
The UK lockdown was imposed on March 23, meaning only about a week of the first quarter was affected. That was still enough for a 2% contraction in the three months, the worst since the financial crisis.
The damage in March was widespread, but the huge services sector took the brunt. Travel and tourism plunged 50%, while accommodation fell by 46% and air transport by 44%. Manufacturing and construction also contracted.
The economy has now failed to grow for three of the previous four quarters, after months of political and Brexit uncertainty meant the UK
entered the latest crisis on a weak footing.
UK government bonds advanced on Wednesday, sending the yield on UK 2-year debt to a record low. The 10-year yield also declined.
In a sign of the scale of the latest challenge, Chancellor of the Exchequer Rishi Sunak on Tuesday extended wage subsidies for furloughed workers until the end of October at a cost of billions of pounds to the public purse.
The Telegraph newspaper reported a leaked Treasury assessment about the cost of the crisis to the government. The “base case” saw the deficit, forecast at 55 billion pounds ($68 billion) before the pandemic, rise to 337 billion pounds. The “worst case” scenario saw it hit 516 billion pounds.
“With the risks to the outlook firmly to the downside, we still expect the Bank of England to ease again next month,” said Dan Hanson, a UK economist
Meanwhile, the BOE, which has cut interest rates to 0.1% and restarted bond purchases, has indicated more easing could come as soon as next month. It expects a strong rebound in 2021 after a 14% slump this year but many analysts regard such a scenario as overly optimistic.
“It’s now very hard to imagine a rapid ‘V-shape’ recovery, and we don’t expect a return to pre-virus levels of activity until 2022 at the earliest,” said James Smith, an economist at ING.
Consumer spending, the engine of the economy, fell 1.7% in the first quarter, the largest drop since the financial crisis, and it’s set to fall further.
Separate reports Wednesday showed spending has collapsed further in recent weeks. The British Retail Consortium said its measure of sales fell 19.1% in April from a year earlier — the worst since records began in 1995 — while Barclaycard’s own gauge of transactions fell 36.5%.

UK retail sales drop 20%
Bloomberg

UK retail sales dropped in April by the most in at least a quarter of a century, according to industry figures that outline impact of shutdown on stores.
The British Retail Consortium said total sales fell 19.1% in April from a year earlier, the most since its monitor began in 1995. In a further sign of the damage done by the lockdown, a Barclaycard measure of consumer spending fell 36.5% last month.
On the consortium’s like-for-like measure, which excludes temporarily closed stores, sales were up 5.7% in April. But most of that growth came from online shopping, which surged almost 60%.
Online demand was driven by entertainment products and home-related goods, with computing equipment, household gadgets, toys and baby items performing strongly. Clothing experienced a major decline.
Figures are forecast to show the UK economy shrank in the first quarter, reflecting the imposition of virus-related restrictions. The slump is likely to deepen this quarter, and the government is extending aid programs to help support workers and businesses.
All British retailers have been affected by the lockdown. Even grocers and other shops deemed essential that have been allowed to continue operating have had to absorb higher costs as they implement social distancing and other measures.
Primark, the value clothing chain owned by Associated British Foods Plc, has said the closure of all its shops is costing 650 million pounds ($800 million) of lost revenue a month. Marks & Spencer Group Plc has cut its dividend to preserve cash and weather the crisis. Next Plc reported a 41% plunge in full-price sales in the quarter ended April 25 and said business would remain under pressure for the rest of the year.
Nearly all retailers have withdrawn financial guidance for the year.
The lockdown has been “catastrophic” for retailers, the consultancy group BDO LLP said last week, adding that even the strongest online sales ever wouldn’t be able to offset the impact. Consumer behaviour has changed drastically during lockdown, and retailers will need to adapt as they start to reopen, according to Sophie Michael, head of retail and wholesale at BDO.