UK's economy suffers in November but Covid vaccine hopes ease gloom

Richard Partington Economics correspondent
·6-min read
<span>Photograph: Nathan Stirk/Getty Images</span>
Photograph: Nathan Stirk/Getty Images

Increase in Covid infections slows

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The rate of increase of new coronavirus infections appears to be slowing, data suggests, although the death toll is expected to remain high for weeks to come. After the launch of tougher restrictions across the UK and second lockdown in England, the seven-day average of new cases has fallen below 20,000, from a peak of more than 24,000 on 10 November. However, the number of deaths within 28 days of a positive Covid test – which lag behind infections – increased to 696 on Wednesday, the highest number since May. With plans to relax restrictions over Christmas, there are also concerns the infection rate could rise again in the new year.

Travel plunges in second lockdown

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The number of trips taken on Britain’s roads and public transport usage has plunged during the second national lockdown in England and as tighter controls were applied in Wales, Scotland and Northern Ireland. According to Apple mobility data, which records requests made to Apple Maps for directions, bus and train journeys are down by more than half and road journeys a third below pre-pandemic levels. However, mobility remains higher than during the first wave, reflecting looser restrictions, perhaps lower public adherence, and higher levels of economic activity this time around.

Vaccine hopes boost global markets

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Hopes for an early coronavirus vaccine have fuelled a sharp recovery in global stock markets, after pharmaceutical companies, including Pfizer, AstraZeneca and Moderna, revealed progress in immunisation trials. With preparations underway to deliver the vaccines, millions of doses pre-ordered by the government, and a hope that some jabs could be ready to go before Christmas, the FTSE 100 has jumped by more than 10% in the past month. Investors are betting that if Covid-19 can be significantly reduced early next year, a faster economic recovery will follow. The blue-chip index has risen to about 6,400, from about 5,800 at the start of the month. However, it is still more than 1,000 points down from the start of 2020.

Clothing prices fuel inflation rise

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UK inflation rose by more than expected in October as the rising price of clothing and secondhand cars – in hot demand as people steer away from public transport – pushed up the cost of living. The Office for National Statistics (ONS) said the consumer prices index (CPI) jumped to 0.7% in October from 0.5% a month earlier as shops raised clothing prices, returning to a more normal seasonal pattern after the disruption this year. City economists had forecast an inflation rate of 0.6% for October. However, the inflation rate remains far below the Bank of England’s 2% target as the UK economy continues to struggle for momentum.

UK sinks into double-dip recession

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Surveys of business activity show the UK slipped into a double-dip recession in November as tough new restrictions took their toll. However, the prospect of an early vaccine also boosted business optimism for the next 12 months to the highest level since 2015. The monthly IHS Markit/Cips flash UK composite PMI fell from 52.1 to 47.4 – the steepest fall since May. A reading below 50 indicates that the economy is contracting. Activity levels also fell in the eurozone amid tougher restrictions. In the US, by contrast, the PMI rose from 56.3 to 57.9 – its highest level in five years.

Furlough extension delay hits employment

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A record 314,000 people lost their job in the three months to September, a period in which the furlough scheme was gradually cut back before its planned closure at the end of October. With redundancies rising faster than during the 2008 financial crisis, the ONS said unemployment rose to 4.8%, from 4.1% in August. The chancellor, Rishi Sunak, announced a last-minute U-turn to extend the furlough scheme until the end of March 2021 to cushion the economic fallout from the second national lockdown in England. However, 33,000 people were removed from company payrolls in October before the change was announced, when the chancellor had insisted furlough would end.

Christmas shopping spree before lockdown

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Shoppers rushed to buy early Christmas presents in October before the second Covid lockdown was imposed in England at the start of November, boosting retail sales for a sixth consecutive month. Total sales volumes rose by 1.2% across the UK compared with September, in a reflection of resilient consumer spending despite the economic downturn. Retail sales have however more generally remained robust as consumers shift their spending away from activities that have been restricted by the pandemic, such as holidays abroad, eating out in restaurants and trips to the cinema.

Covid recession hits public finances

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A steep fall in tax receipts and government spending to support businesses and households pushed UK government borrowing to the highest level in October since records began in 1993. The ONS said the budget deficit – the gap between spending and tax income – hit £22.3bn last month, up more than £10bn on the same month a year ago. However, it was a smaller deficit than forecast by City economists, reflecting a stronger bounce back for the economy in October and scaling back of government support. The national debt – the sum of every annual deficit – increased to almost £2.1tn, or 100.8% of GDP.

Summer boom despite economic damage

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Britain’s economy grew at a record quarterly rate of more than 15% in the third quarter, as lockdown restrictions were eased over the summer. However, official figures suggest the recovery was losing momentum before new controls this autumn. The ONS said gross domestic product (GDP) increased by just 1.1% in September – the last month before fresh action was taken. Despite the record growth rate, the scale of the decline during the first lockdown means GDP remains 8.2% below its pre-pandemic level. With renewed restrictions in place, the Bank of England forecasts a 2% fall in GDP in the fourth quarter. GDP for 2020 overall is expected to fall by 11%.

House prices rise at fastest rate in four years

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UK house prices rose at the fastest annual rate in more than four years in October, despite concerns that the property market could slow in the coming months amid renewed pressure on the economy and rising unemployment next year. Halifax, Britain’s biggest mortgage lender, said the average price of a home topped £250,000 for the first time, with prices up 7.5% compared with a year earlier. It was the strongest rate of annual growth since June 2016. The boom comes as people reappraise their living space and exploit the government’s stamp duty cut. However, the tax holiday will expire at the end of March, at the same time as the furlough scheme, in a potential cliff-edge for the market.

And another thing we’ve learned this month … Sunak announces pay freeze in response to record borrowing

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Rishi Sunak used the spending review to warn that the economic emergency from Covid-19 has only just begun, responding to the deepest slump for 300 years with a support package worth £280bn this year. Repeated tweaks and U-turns mean Sunak has made 14 separate spending announcements this year. The Office for Budget Responsibility forecast a plunge in economic output of 11.3% this year, the worst performance since 1709, and a budget deficit of £394bn, more than double the borrowing incurred due to the 2008 financial crisis. The spending review included a £4bn “levelling-up” fund, but also controversial plans to freeze public sector pay and cuts to international aid.

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