Amid new rules limiting people’s movement and closing non-essential businesses, data has begun to emerge highlighting the severity of the downturn. PMI indices in the UK, US and EU have all recorded historical lows. Unemployment applications are breaking all records. Fitch, a ratings agency, downgraded the UK sovereign debt, citing the impact on the public finances and the economy.
The UK switched its COVID-19 response strategy from mitigation to suppression after it became clear that both the death toll and clinical pressure would be intolerable. Vast swathes of the economy have effectively stopped. And monetary easing and unprecedented levels of fiscal stimulus, while supportive, cannot fully offset this. European countries imposed further civic restrictions, while the US Senate failed to pass the enormous $1.8 trillion package for coronavirus relief. Few weeks have the power of the one we just experienced. And it’s the shock of the new.
That was the conclusion the Chancellor has come to. Less than a week after the Chancellor unveiled a £12billion package to deal with Covid-19, Rishi Sunak unveiled another MASSIVE financial package (£350bn) on Tuesday and has vowed to do ‘Whatever it takes’. This is the famous line Mario Draghi ECB President came out with in summer 2012 to ‘save the euro’. Fiscal rules have been thrown out the window. Borrowing and public spending will surge.
The latest Labour Market Report for Northern Ireland is effectively a case of looking in the rearview mirror, given that the business landscape has changed so drastically since Q4 2019, the period covered by the latest figures.
Those who thought that uncertainty had peaked at the end of last year will have had cause to think again over the past seven days or so. The fact the word Brexit barely surfaced in discussions around Budget 2020 and other economic events over the past couple of weeks speaks volumes. We have moved to an entirely new crisis that has very much overshadowed the UK’s departure from the EU.
Countries put on lockdown, rates slashed, stock markets savaged, trillions poured into the US financial system and an historical Budget in the UK. Last week was shocking as it was breathless. There’s been a sizeable dose of policy stimulus to combat the growing economic fallout of the coronavirus outbreak and the threats to financial stability. There will likely need to be a whole lot more.
Today’s Budget announcement was part of a stimulus ‘double-bill’. The Bank of England unveiled a massive impetus this morning, with a 50-basis point cut in the interest rate and more importantly a package of targeted measures to guarantee credit flow to businesses given the looming threat of Coronavirus.
This afternoon’s instalment in the form of Rishi Sunak’s debut Budget complemented this by acting to ease cash flow concerns for households and businesses. In addition, the public spending taps have been turned on to support public services and to enable investment in infrastructure – in relation to everything from climate change to transport and housing. One thing that was missing however was any meaningful increase in taxes. Normal Budgets are generally a careful balancing act of revenue-raising and spending commitments, but not today, which was a rather one-sided affair in that it was overwhelming focused on spending.
Where is all of this money coming from if not from tax rises? The answer is borrowing. The UK is set to borrow £300billion over the next five years.
Continue readingCoronavirus has now spread to 104 countries. The Italian government took exceptional measures to put in quarantine 16 million people living in 14 provinces in North Italy, it also announced restrictive measures covering the whole country. The Fed made an emergency 50bp rate cut, but this failed to put a floor under the falling stock market. Oil prices have plunged following OPEC’s failure to cut output, resulting in a price war between Russia and Saudi Arabia.
Today sees the release of February data from the Ulster Bank Northern Ireland PMI. The latest report – produced for Ulster Bank by IHS Markit – signalled that the Northern Ireland private sector remained in contraction territory, and saw rates of decline in output and new orders quicken slightly from the start of the year. Business confidence also softened. One bright spot, however, was employment which increased for the third month running and to the greatest extent since November 2018.
COVID-19 is now in 69 countries and the hopes that it will be mainly contained within China are gone. After a large increase in reported cases in Italy and Iran, the stock market experienced the worst week since the financial crisis. Yields on ten-year Treasury bonds (viewed as a safe asset) reached all-time low of 1.13%.
