UK borrowing has hits a new record high this year, and car production almost halved
- Latest: European stock markets have worst week since June
- UK borrowed £35.9bn in August – a record for the month
- Borrowing since April has hit £173.7bn – another record
- Car factory output tumbled 44% last month
- Bar chain Revolution could shut pubs
- Takeover battle for William Hill
And finally…. a weaker pound, and a revival on Wall Street, has helped Britain’s stock market avoid hitting a four-month closing low.
The FTSE 100 index has closed 19 points higher at 5842, up 0.3%, having briefly hit its lowest level since May arround lunchtime.
European equity markets are largely lower because of growing concerns about the health crisis. A record number of new Covid-19 cases in France and The Netherlands has soured sentiment in mainland Europe. It was reported that Spain is struggling too, and there is speculation that Madrid could be facing a lockdown. Things in the UK are not great either as London has been added to the Covid-19 ‘watch list’.
The FTSE 100 is holding up alright in comparison with its eurozone equivalents, and this is because the British market underperformed yesterday – when the Winter Economic Plan was announced. Rishi Sunak, the Chancellor of the Exchequer, mapped out plans to encourage employers to keep on furloughed workers but he cautioned that some businesses will go bust and there will be a jump in the jobless rate. It seems that the UK got its bad news out of the way yesterday.
The boss of UK retail group Next warned today that thousands of traditional jobs on the high street now have no future, due to the shift to online shopping.
Simon Wolfson said what looked to be a permanent shift to online spending was creating work for warehouse staff and couriers but that in the long run fewer people were going to be needed in shops, and their jobs would be “unviable”.
“I wouldn’t want to underestimate the difficulty that is going to cause a lot of people who work in retail.
I think it’s going to be very uncomfortable.”
Related: Online shopping makes many high street jobs unviable, says Next boss
Heads-up shoppers: Tesco has joined the ranks of supermarkets restricting items, to prevent panic-buying by customers nervous of a new lockdown.
Related: Tesco limits sales of key items to stop Covid panic-buying
Here are some charts showing the stare of the UK public finances (the latest data was released at 7am, if you’re just tuning in).
Any readers in Monaco should keep their eyes peeled for Sir Jim Ratcliffe, the UK’s richest person and high-profile Brexiter.
Ratcliffe has swapped the delights of Brexit Britain for the Principality of Monaco, a move that will deliver serious tax benefits.
Ratcliffe, a petrochemicals magnate with an estimated £17.5bn fortune, has this week officially changed his tax domicile from Hampshire to Monaco, the sovereign city-state that is already home to many of the UK’s richest people.
It has been estimated that the move will save him £4bn in tax payments. People who live in Monaco for at least 183 days a year do not pay any income or property taxes. The highest tax rate in the UK is 45% on income above £150,000-a-year.
Related: Sir Jim Ratcliffe, UK’s richest person, moves to tax-free Monaco
Here’s my colleague Rob Davies on Revolution’s warning that some bars could close due to the UK’s early closure rules:
Revolution, the city centre bar chain, is considering shutting venues after it was rocked by the latest government-imposed Covid-19 restrictions, including the 10pm curfew that began this week.
Revolution, which has about 70 bars, said it was weighing up whether to launch a company voluntary arrangement (CVA) – a form of insolvency procedure that struggling businesses can use to shrink rather than risk failure.
Related: Bar chain Revolution weighs up closures over Covid curfew
September has been pretty rough in the markets, with the Dow Jones industrial average down 6% this month….
⚠️BREAKING:
*U.S. STOCKS FALL AT THE OPEN AS WALL STREET HEADS FOR FOURTH WEEKLY LOSS IN A ROW
⚠️https://t.co/ZWLxRkzIIQ$DIA $SPY $QQQ $IWM $VIX pic.twitter.com/jspARou9HY
After a decidedly volatile week, Wall Street trading has began rather gingerly today.
Back in the markets, European bank shares have hit an all-time low today.
for the simulcast eu banks record low @bsurveillance pic.twitter.com/gnNEE17r1h
US durable goods orders were also subdued if you strip out the volatile transport sector, only up 0.4% during August.
US durable goods ex-transport (Aug): 0.4% vs 1.2% expected, prior 3.2% (revised from 2.6%) https://t.co/316CnWgOKf
Just in: Demand for US durable goods was a lot weaker than expected in August
Durable goods orders (from machinery and furniture to computer kit and vehicles) only rose by 0.4% month-on-month in August, having surged by over 11% in July.
U.S. AUG. DURABLE GOODS ORDERS INCREASE 0.4% M/M; EST. 1.5%… starting to see the effects of no stimulus checks
US Durable Goods Orders August Prelim Report – Census Bureauhttps://t.co/CPcuo4EVaF pic.twitter.com/P69OQq5hnn
William Hill has now confirmed that it is in takeover talks — with two parties — sending its shares even higher.
In a statement to the City, William Hill says it has been approached by Apollo (see last post), and has also received a cash proposal from Caesars Entertainment (the US gambling company which owns Caesars Palace in Las Vegas)
The Board of William Hill plc (“William Hill”) notes the recent press speculation regarding a possible offer for William Hill. It confirms that it has received separate cash proposals from Apollo Management International LLP (together with Apollo Global Management, Inc. and its other subsidiaries, “Apollo”) and Caesars Entertainment, Inc. (“Caesars”).
Following an initial written proposal from Apollo on 27 August 2020, William Hill received a further proposal from Apollo and proposals from Caesars.
Breaking: William Hill confirms it is the subject of a bidding war between casino firm Caesars Entertainment and asset manager Apollo Global Management.https://t.co/rPjMyja1SH
Roth Capital analyst David Bain says the two companies have been in talks for “some time” on a 50/50 partnership that would combine Caesars’ iGaming and sports betting segments with William Hill USA. The Caesars Palace operator already owns 20 percent of the British bookmaker’s US operations.
Shares in UK gambling company William Hill have just surged 20%, on reports of possible takeover interest.
Bloomberg says that US investment management group Apollo is exploring “a potential acquisition” of William Hill, adding:
The buyout firm has approached William Hill to discuss a potential deal, the people said, asking not to be identified because the information is private.
BREAKING: Apollo Management is exploring a potential acquisition of U.K. gambling group William Hill https://t.co/V2aVq3NUQv pic.twitter.com/fucYYY75xA
Britain’s blue-chip stock index has now dropped to its lowest level in four months, as European stock markets fall deeper into the red.
The FTSE 100 just hit 5771 points, a drop of 50 points today, and its weakest level since mid-May.
Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi have reportedly been in discussions to restart negotiations on a new compromise bill aimed at supporting the US economy through the virus crisis.
But while the fact that the White House and Democrats are talking again is a positive step in reaching a bi-partisan deal, there is deep scepticism about whether an agreement is possible. Democrats in the House of Representatives are drafting a package in the region of $2.4 trillion, far above the $1.5 trillion that President Trump has signalled he is willing to accept and well above the cap of $1 trillion that Republicans have set.
⚠️U.S. STOCK FUTURES POINT TO NEGATIVE OPEN AS WALL STREET HEADS FOR FOURTH STRAIGHT WEEKLY LOSS
*DOW FUTURES70 POINTS, OR 0.3%
*S&P 500 FUTURES0.3%
*NASDAQ FUTURES0.3%
⚠️ https://t.co/c2YtNoxoA3 $DIA $SPY $QQQ $IWM $VIX pic.twitter.com/2swquadNUh
In another blow to the UK car industry, engine production tumbled by over a third last month.
“These figures come at an extremely worrying time for the sector as it braces for a second wave of coronavirus. Further restrictions both here and in important export destinations will dent consumer and business confidence and inject yet more uncertainty into an already fragile market.
Meanwhile the end of the Brexit transition period looms large and while yesterday’s announcements by the Chancellor are welcome, we urgently need a zero tariff deal agreed and in place by year end to safeguard skilled manufacturing jobs in this sector.”
Bar chain Revolution has announced it could be forced to shut some of its establishments, due to the government’s new Covid-109 restrictions.
The Board is currently evaluating the potential impact of the latest developments on the Group’s business before deciding what the next steps should be. One of the potential options being explored is a reduction in the size of the Group’s estate by the implementation of a company voluntary arrangement (“CVA”).
No decisions have yet been made and there is much further work to complete before the Board decides on any appropriate course of action. Revolution has a strong balance sheet following the £15m equity fundraising and the extension of its banking facilities announced in June but the Board believes that the long term nature and potential impact of the latest operating restrictions means that it must consider all necessary options to ensure that its business remains viable.
Related: Coronavirus: pubs and restaurants across England to be forced to shut at 10pm
(10pm curfew just meant everyone rolling out onto the streets and onto the tubes at the same time and it was the busiest I’ve seen central London in months) pic.twitter.com/7oWKH5APNG
The chief secretary to the Treasury, Steve Barclay, has been forced to defend the emergency measures announced by Rishi Sunak yesterday, amid criticism that they won’t prevent an unemployment crisis this winter.
Barclay told Sky News that “regretfully”, every job can’t be saved, just as today’s borrowing figures came out.
There’s a whole range of investment going into the economy in those sectors while we protect as many of those jobs that are viable, that people have been protected in initially through the furlough and now through the winter package.
“It is right that we also look at the cost to the wider economy, these measures come at a significant fiscal cost and that’s why it’s right we target those jobs that are viable during what is going to be sadly a difficult winter.”
Related: UK borrowing surges as Covid pushes national debt to record £2.024tn
Companies most vulnerable to the Covid-19 pandemic are leading the fallers on the London stock market today.
British Airways parent company, IAG, is now down 5.7% at 89p – its lowest point since November 2011.
Covid-19 is also creating a new breed of ‘reverse commuters’, as London-based workers seek employment outside the capital.
My colleague Hilary Osborne explains:
Londoners are increasingly looking for jobs outside the capital as the city’s economy stalls, one of the UK’s largest recruitment sites has found, raising the prospect of a wave of “reverse commuters” or a continued exodus of residents.
Figures from Indeed, based on millions of job adverts and searches, show that on 18 September, the number of posts advertised in London was down by 55% on the same date in 2019.
Related: Rising number of Londoners looking for work outside capital, says job site
Josie Dent, managing economist at the CEBR, also warns that the full financial cost of Covid-19 is still unknown:
Despite the further winter stimulus measures announced by the government, the end of the furlough scheme will save the government money, compared to the months that it has been running. Yet, with unemployment set to rise, benefits claims will increase, offsetting some of the cost savings from the end of furlough. Additionally, with no end to the spread of coronavirus yet in sight, it is likely that the Chancellor will have to continue to stimulate the economy with support for workers and businesses for the foreseeable future.
Today’s data highlight the building fiscal cost of the coronavirus crisis. Yet, with social distancing set to remain in place for at least the next six months, it will be some time before the full impact of the shock becomes clear.
The FT’s Chris Giles says today’s borrowing figures, although historically high, don’t count all the costs of the government’s spending on Covid-19:
The UK’s public finances have continued on a path towards a record peacetime deficit in 2020-21, with the central government borrowing £221.2bn in the first five months of the financial year to combat the coronavirus pandemic.
Although that figure was lower than the Office for Budget Responsibility, the fiscal watchdog, had expected, the official statistics are yet to incorporate expected losses on government-backed loans to companies and £24bn of new spending for the NHS, vaccines and coronavirus testing the Treasury revealed on Thursday.
One reason Rishi Sunak was sparing with the cheque book today…
…. £400bn deficit now looks perfectly plausible for 2020-21
> 20% of GDP….
…That’s almost WWII levels of borrowing
(thanks to the FT’s marvellous stats and graphics teams) pic.twitter.com/zau9Sv5VpY
Covid-19 fears have pushed Europe’s stock markets into the red this morning.
Airline shares are leading the fallers, with British Airways owner IAG down 5%, Germany’s Lufthansa falling 4% and Ryanair losing 2.7%.
Today’s UK borrowing figures clearly show the fiscal cost of the Covid-19 pandemic, says Charlie McCurdy, Researcher at the Resolution Foundation:
The fiscal cost of the covid crisis reached £173.7bn by the Summer, and higher borrowing will continue until the crisis is over.
“August’s borrowing largely reflects higher spending to tackle the virus and it’s impact, with over £10bn spent on the retention and self-employment schemes in that month alone. This highlights the scale of the coming hit to family living standards as the Chancellor set out scaled back support yesterday.
Government borrowing is estimated to be £173.7 bn since the start of the financial year, the highest borrowing in any April to August period since records began in 1993. This is less than the OBR expected but may not be true in coming months w/ signs of a weakening recovery. pic.twitter.com/hC1FaLPiAq
Extra borrowing reflects additional spending on supporting households (£10bn on JRS and SEISS in August alone). In August central govt. subsidy expenditure was £14bn of which £6.1bn were JRS payments compared to £6.9bn in July. CJRS spending is falling as the scheme winds up. pic.twitter.com/WmyY2KoZsC
This morning’s data includes the impact of the partial VAT cut which took effect on July 15. We will likely see more from this in the coming months… pic.twitter.com/QCRcxeLydl
…debt has risen as a result to 101.9% of GDP in August 2020, an increase of 21.8 percentage points compared with August last year, and the second time (including July 2020) it has been above 100% since the financial year ending (FYE) March 1961. pic.twitter.com/c7fJPdt0lD
High fiscal costs do look to be manageable: the DMO has raised over £243bn since mid-March & while debt might be going up costs are still going down. Changes in debt interest are largely a result of movements in the Retail Prices Index to which index-linked bonds are pegged. pic.twitter.com/kdXSGpErAT
Looking back at today’s car production figures….and August’s 44% slump means UK car production is down over 40% so far this year.
“The news [that production fell 44% last month] comes as the UK braces for a second wave of coronavirus, with local lockdowns in place across parts of the country and tighter social and business restrictions to curb the rate of transmission.
Consequently, assistance for sectors such as automotive, where many firms cannot operate at full speed, is now critical and the Job Support Scheme, as well as the other financial measures announced yesterday, come as welcome news.
Interestingly, the ONS has lowered down its estimate for UK borrowing in July, by over £11bn, to £15.4bn.
That’s a remarkably large revision, and shows just how difficult it is to track the UK economy through the pandemic.
British public borrowing rose to £35.920bn in August, a record high for the month though below its peaks earlier in the financial year, as the government dealt with the economic damage from the coronavirus pandemic.
July’s public borrowing figure was revised down by more than £11bn. But borrowing for the first five months of the financial year still rose further to its highest on record at £173.7bn, overtaking the annual total at the peak of the financial crisis.
Britain has already borrowed more than in any previous financial year (at over £173bn since April), as this chart shows:
Of course, the government was always expected to borrow a huge sum this year. And borrowing in the year to date is actually 22% below what the OBR projected in July. If that continued, the government would borrow £290bn this year (14% of GDP).
However, after an impressive rebound in Q3, we think the resurgence of the virus and new restrictions will cause GDP to stagnate for the rest of this year, hurting tax revenues….
Cumulative borrowing in the UK this fiscal year is significantly higher than last year pic.twitter.com/z33MZoFQfY
As a proportion of the economy, Britain’s national debt is now its highest level since 1961 (at nearly 102% of GDP).
August’s borrowing has pushed the UK’s national debt to a new record high of £2,023.9bn.
That’s around 101.9% of gross domestic product (GDP), and £249.5bn more than at the same point last year.
Public sector net debt was £2,023.9 billion at the end of August 2020, 101.9% of GDP, £249.5 billion more than at the same point last year https://t.co/4OWYxcUcS8 pic.twitter.com/Qed3wtQUk5
OBR currently estimate that UK borrowing in the current financial 2020/21 could rise to £372.2 billion, nearly seven times the amount borrowed in 2019/20 and more than double that borrowed in 2009/10 at the peak of the financial crisis. #deficit #PSNBex https://t.co/YRYj4bbJuI pic.twitter.com/nZN9frYlKY
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Britain’s economy has suffered a double-blow from the Covid-19 pandemic this morning – government borrowing has surged again, and car production has almost halved.
Borrowing was £173.7 billion in the financial year to date (April-August 2020), £146.9 billion more than the same time last year and more than in any April-August period since current records began in 1993 https://t.co/EEaukrgDCX pic.twitter.com/KfjAecPIzu
Related: Rishi Sunak warns jobs plan will not stem UK’s rising unemployment
“These are increasingly disturbing times for UK car makers and suppliers with the coronavirus crisis weighing heavily on the sector.
Companies are bracing for a second wave with tighter social and business restrictions making the industry’s attempts to restart even more challenging.
Global stocks rise on tech rally and renewed US stimulus hopes against an uptick in global coronavirus cases. U.S. coronavirus cases surpass 7mln. Bonds lower w/US 10y yields at 0.67% and 10y Bunds at -0.5%. Dollar steady w/ Euro at $1.1671. Gold at 1872 and Bitcoin 10.7k. pic.twitter.com/3oiSXaae8p