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The coronavirus crisis: the economic costs mount up

14th April 2020

Introduction

The economic costs of the current, lockdown measures (“Stay At Home measures”), which were introduced on 23 March to contain the coronavirus pandemic, remains all but impossible to assess. There are still many imponderables, not least of all the timing and “shape” of the Government’s exit strategy from lockdown, under which the restrictions will, presumably, be progressively lifted. When the Prime Minister announced the lockdown he said the measures would be in place for three weeks, then reviewed.1-3 On 9 April, however, Foreign Secretary Dominic Raab, deputising for the Prime Minister, said that the lockdown measures will “…have to stay in place until we’ve got the evidence that clearly shows we’ve moved beyond the peak” when asked whether the Government had decided to extend the rules.4 He also said “…SAGE (Scientific Advisory Group for Emergencies) will meet next week to discuss the latest evidence and we’ll keep the measures we put in place under review.” There is due to be a review on Thursday 16 April. Suffice say, we do not currently know when, and how, restrictions will begin to be relaxed. Inevitably, debate on the exit strategy is intensifying, as evidence of the economic and social costs of the lockdown mount up. A possible approach could be to lift the restrictions on the sale of “non essential” goods, to help the retail sector, and relax the curbs on travel and moving house. Many businesses, currently in lockdown, could then start coming out of hibernation. More specifically, economists Gerard Lyons and Paul Ormerod have proposed a “traffic light” approach:5

The first move would be from lockdown to “red” when more shops, though not all, would open as long as strict social distancing was observed.

Then red to “amber”, when unlimited car journeys would be permitted (in some cases substituting for public transport), with compulsory wearing of masks and gloves on public transport with social distancing requirements.

And, finally, the move to “green” when sporting occasions could return and mass transport could return to normal.

PERSPECTIVES

By Ruth Lea, Economic Adviser to the Arbuthnot Banking Group

Ruth Lea

Economic Adviser

Arbuthnot Banking Group

ruthlea@arbuthnot.co.uk

07800 608 674

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The economic impact of the coronavirus pandemic

We will not know how the official economic indicators will reflect the current crisis for a while. The ONS releases their first estimates for March retail sales on 23 April, March GDP with industry breakdown on 12 May (with 2020Q1) and the March labour market data on 19 May. In the absence of hard information on the economic impact of the coronavirus pandemic, in general, and the lockdown, in particular, there are, however, surveys, indicators and analyses, which can cast some light. They will be discussed under the following headings:

Survey material on business activity including Markit’s PMIs and the ONS’s new Business Impact of Coronavirus (COVID-19) Survey (BICS), followed by some sectional observations.

Assessments for the hit on GDP, including NIESR’s latest GDP data tracker.

The fiscal costs, including estimates by the IFS.

Other indicators, including the labour market.

Business activity: Markit’s PMIs…

The much-followed Markit surveys confirmed that private sector activity, especially services and construction, had already been significantly knocked by the coronavirus outbreak, and measures, in March.6 (We discuss key international PMIs below.) Specifically, the surveys showed:

The fall in the manufacturing PMI was significant but relatively modest compared with services and construction.7 It fell to a three-month low of 47.8 in March, down from 51.7 in February. (50.0 is the no-change reading.) Markit reported that output had declined at the greatest extent since July 2012. The downturns in output and new orders were widespread, with contractions seen across the consumer, intermediate and investment goods sub-industries. There were also problems with supply chains.

The decline in the services PMI was much more severe.8 The PMI was estimated to be 34.5 in March, sharply down from 53.2 in February. Markit commented that “…this reading exceeded the previous record low seen at the height of the global financial crisis and signalled by far the fastest downturn in service sector output since the survey began in July 1996. The slump in activity was almost exclusively linked by survey respondents to business shutdowns and cancelled orders in response to the COVID-19 pandemic”.

The Composite Output Index, a weighted average of the manufacturing and services outturns, was 36.0 in March, down sharply from 53.0 in February and the lowest level since this series began in January 1998.9 Significantly, Markit noted that the UK economy was “…now almost certain to experience a deep contraction in 2020Q2”.

Finally, the Markit/CIPS construction index dropped to 39.3 in March from 52.6 in February, signalling the steepest fall in construction output since April 2009.10 Survey respondents overwhelmingly attributed reduced activity to the impact of the COVID-19 pandemic. Emergency public health measures to halt the spread of COVID-19 had led to stoppages of work on site and a slump in new orders.

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…and the ONS’s new BICS survey…

The results of the ONS’s new Business Impact of Coronavirus (COVID-19) Survey (BICS) were first published on 2 April, and the latest update was released on 9 April.11-12 Note that the BICS results, as reported, related to the period 9-22 March, prior to the introduction of the Government’s draconian “Stay At Home measures” (23 March). Later survey results can, therefore, be expected to show materially worsening results for the three main metrics (turnover, workforce and business confidence) covered in the survey. BICS classifies the industry sections using the Standard Industrial Classification (SIC) (see annex table 1).13 Around 4,600 businesses responded to the BICS, and the results were broadly as follows:

Turnover: 47% of businesses reported that their turnover was lower than normal for this period. For accommodation and food service activities (regardless of employment size) over 90% of responding businesses reported that turnover was lower than normal.

Workforce: 29% reported having to reduce staff numbers in the short-term. The accommodation and food services sector, the administrative and support services sector (including rental and leasing and employment activities, travel agency, and office administrative support) and the arts, entertainment and recreation sector reported the largest proportions of reducing staff numbers in the short-term.

Business confidence: 40% of business respondents reported they were confident they could continue operating during the COVID-19 pandemic, while 15% said they were not confident and 44% said they did not know. The main sectors, from those sampled, to report that they were not confident that they would be able to continue operating were from businesses within the accommodation and food service sectors and the arts, entertainment and recreation sector.

…and some sectional observations

The Markit surveys have shown, the biggest business impacts of the coronavirus outbreak so far relate, unsurprisingly, to parts of the (private) services sector and construction, whilst the manufacturing sector, though damaged, has not been quite so affected. The ONS BICS serves to highlight the particularly vulnerable services sections, which are (again unsurprisingly): accommodation and food services, administrative and support services and arts, entertainment and recreation. Together these surveys, as well as anecdotal evidence, serve to emphasise that the impact of the coronavirus outbreak will be very unevenly felt throughout the economy. Just how unevenly will become clearer as more evidence is revealed. In the meantime, we make some brief observations as to how different sections may be affected by the current crisis. Charts 1a and 1b show the GDP weights (per 100) of the industrial sections for, firstly, agriculture (section A), production (sections B-E, total weight 13.6 in 2019) and construction (section F) and, secondly, services (sections G-T, total weight 79.6 in 2019).

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Chart 1a GDP weights by SIC industry sections and selected divisions (2019), per 100, agriculture, production & construction

Chart 1b GDP weights by SIC industry sections and selected divisions (2019), per 100, services

Source: ONS, “GDP quarterly national accounts, 2019Q4”, 31 March 2019, click on “GDP output approach – low level aggregates”. See also annex table 1.

0.7 0.6

10.2

1.5 1.3

6.1

0.9

0

2

4

6

8

10

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Sections Division (m/f)

10.5

4.1

2.8

6.67.2

4.2

7.6

5.1 4.95.8

7.5

1.6 1.7

0.3

0

2

4

6

8

10

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Sections

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Concerning agriculture, production and construction:

Agriculture (which includes forestry, fishing as well as horticulture, 0.7% of GDP). The clampdown on the relevant retail outlets will impact on horticulture, but the overall impact on agriculture should be modest.

Markit has already identified some problems for manufacturing (10.2% of GDP), but, as noted, they do not appear to be as severe as construction and services. Indeed there is anecdotal evidence that some manufacturers are stepping up production, whilst supply chain difficulties, insofar as there has been a reliance on imports (including China), may lead to some import substitution.14 The car industry, which faced problems prior to the pandemic, however, appears especially vulnerable. Even though car production held up well in February (the latest month available), car registrations plummeted in March, with implications for both manufacturing and retail.15-16 Difficulties in the motor vehicle and construction sectors are likely to impact on the demand for steel.

Of the other components of production, it is unlikely there will be significant impacts on mining and quarrying (including oil and gas), electricity and gas supply or water services. Together they account for 3.4% of GDP.

As Markit has already noted, construction (6.1% of GDP) has already been significantly affected by the coronavirus outbreak. It is likely that the sector will deteriorate further.

Concerning the services sector:

Wholesale and retail trade, including the motor trade, represents a sizeable part of the economy (10.5% of GDP, larger than manufacturing). Retail has already been notably affected by the closure of “non-essential” retail outlets, the damage of which will only partly be offset by a rise in online sales.17 (Online sales have recently accounted for around 20% of total retail sales.) As noted above, car registrations are already well down, reflecting diminished sales. Poorer retail sales will have knock-on effects for wholesale trade.

Transportation and storage (4.1% of GDP, of which 2.2% is transport). There is little doubt that much of transport has already been badly affected by the coronavirus outbreak, not least of all airlines, ferries and road haulage.

Accommodation and food services (2.8% of GDP). The BICS suggested that this section was one of the worst affected, if not the worst affected.

Information and communication (6.6% of GDP, including publishing, broadcasting, IT) and financial and insurance activities (7.2% of GDP) will be (and have been already) negatively impacted, though not as devastatingly as, for example, accommodation and food services. Many of their activities can continue under lockdown. A similar situation probably applies to professional, scientific and technical activities (7.6% of GDP).

Real estate activities (4.2% of GDP, excluding imputed rent, which accounts for 9.8% of GDP), will be undermined by the clampdown on house moving. House-moving restrictions were initially introduced by the Government on 23 March (updated on 26 March).18-19 According to one domestic property website (Zoopla), the number of new property sales agreed in the UK has fallen by 70% since the start of the coronavirus restrictions (by early April).20 House prices were steady in March according to the Halifax. However, for the most part the survey’s results were recorded prior to the clampdown.21 A more recent survey, undertaken by the RICS found 74% of respondents expected London house prices to drop within three months (and UK house prices were also expected to fall).22 Specifically, the RICS reported that 39% of chartered surveyors reported a fall in buyer demand in the capital, whilst new homes coming onto the market dropped sharply in March, with a net balance of -63% of London respondents reporting a fall.

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Administrative and support service activities (5.1%) is another section identified by the BICS as being badly affected. The section includes rental and leasing and employment activities, travel agency (very vulnerable), and office administrative support.

There are three services sections that are dominated by the public sector: public administration and defence (4.9% of GDP), education (5.8% of GDP, note a significant private sector component) and health and social work (7.5% of GDP). They are expected to be relatively little affected. If anything, healthcare output could expand.

The “arts, entertainment and recreation” section (1.6% of GDP) was another sector identified by the BICS as especially vulnerable.

Other services (1.7% of GDP), including repairs of household goods, dry-cleaners and hairdressers, another vulnerable section.

Finally, activities of households as employers (0.3% of GDP), for example, the employment of domestic staff, are likely to be negatively affected.

It is clear that the impact in services will differ enormously from section-to-section. A very tentative grading system is suggested in table 1. Table 1 Services: the impact of the coronavirus crisis

Classification of impact SIC sections % of GDP

Badly affected, as identified by the BICS

Accommodation and food services (I); Arts, entertainment and recreation (R); Administrative and support service activities (N).

9.5%

Other vulnerable sectors Wholesale and retail trade (G); Transportation and storage (H); Real estate activities (excluding imputed rent) (L-98.2IMP); Other services (S).

20.5%

Negatively affected Information and communication (J); Financial and insurance activities (K); Professional, scientific and technical activities (M); Activities of households as employers (T).

21.7%

Public sector-dominated services, likely to be relatively little affected

Public administration and defence (O); Education (P); Health and social work (Q).

18.2%

Little affected, with a bias to the downside

Imputed rent (98.2IMP). 9.8%

Total services 79.6% (sic)

Note there are rounding errors.

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NIESR and the CEBR

As we discussed in the last Perspective, in the absence of hard knowledge, the best approach to analysing the possible trajectory of the economy is to scenario-build.23 In our last Perspective, we assumed a fairly benign scenario, but, given the absence of any signs of a near-term relaxation of restrictions, this may have been overly-benign. It is also very unclear just how effective the Chancellor’s policies will be in mitigating the long-term effects on the economy of a sharp downturn. Specifically, two forecasting bodies have recently attempted to assess the impact on GDP:

NIESR suggested there could be a 5% (QOQ) fall in GDP in 2020Q1, and, if lockdown continues, a fall of 15-25% (QOQ) in 2020Q2. NIESR explained “…lockdowns reduce overall activity by around 20% in every month of their operation with larger effects possible in other sectors, particularly if the lockdowns are prolonged”.24

CEBR, similarly, expected a 5% (QOQ) fall in GDP in 2020Q1, followed by a 15% (QOQ) contraction in 2020Q2 “…as business closures take their toll”.25 They also assume restrictions will be loosened by 2020Q3 (as testing becomes more widely available) and there will be measures to kick-start the economy. GDP is forecast to fall by 4% (YOY) in 2020, implying considerable “catch-up” in 2020H2, after the collapse in 2020H1. CEBR then assumes growth of 3.5% in 2021 and a further 2.5% in 2022.

Chart 2 includes quarterly contractions of 5% and 15% respectively for 2020Q1 and 2020Q2, alongside the OBR’s March 2020 forecast. It is no exaggeration to say that such declines are “unprecedented” in recent times. Note that, given that GDP was flat (MOM) in January and slipped 0.1% (MOM) in February, the fall in March will have to be around 15% (MOM) to produce an overall quarterly contraction of around 5% (QOQ) for 2020Q1.26 Chart 2 GDP data (QOQ, %), OBR forecasts (March 2020), ONS latest, NIESR/CEBR

Sources: (i) OBR, Economic and fiscal outlook, March 2020; (ii) ONS, “GDP quarterly national accounts, UK: 2019Q4”, 31 March 2020; NIESR/CEBR (as above).

2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4

OBR, Mar 2020 0.6 -0.1 0.5 0 0.2 0.4 0.5 0.5 0.5 0.4 0.4 0.4

ONS, Mar 2020 0.7 -0.2 0.5 0

NIESR/CEBR -5 -15

-16

-14

-12

-10

-8

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OBR, Mar 2020 ONS, Mar 2020 NIESR/CEBR

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The hit on the public finances

The Chancellor’s support measures for the public services, households and businesses, intended to mitigate the worst economic impacts of the coronavirus pandemic and the Government’s lockdown measures, are listed in annex table 2.27 They will almost inevitably be very expensive. There have been various studies to estimate the costs to the Exchequer of the measures, along with the implications for the public finances of the economic recession. An early, and fairly comprehensive, analysis was released by the IFS on 26 March.28 Even though this analysis was prior to the support package for the self-employed (26 March, ballpark cost of around £10bn over three months) and the revamped Coronavirus Business Interruption Loan Scheme (3 April), it is still a valid exercise, bearing in mind the enormous uncertainties involved in assessing the fiscal costs. The IFS concluded:

Even if GDP “only” falls by 5% in 2020, public sector borrowing in the coming financial year (FY2020) could exceed £175bn, or more than 8% of GDP. This would be more than triple the amount forecast in the Budget (11 March). The OBR forecast Public Sector Net Borrowing (PSNB) of £54.8bn for FY2020 for the March Budget.29

COVID-19 could add around £172bn to borrowing for FY2020, giving a total of around £175bn (table 2 below). About 40% of that increase would result from new fiscal measures (to date of release), and the rest from the economic downturn depressing revenues and adding to government spending.

Borrowing could easily swell by much more than that if the economy shrinks by more, if take up of the Coronavirus Job Retention Scheme (JRS) is high, or if further substantial fiscal measures are unveiled. A deficit of over £200bn in FY2020 is well within the bounds of possibility.

Debt, which is already high by recent historical standards, will jump up again and is likely to remain elevated for some time to come.

Table 2 Impact of the economic response to COVID-19 on borrowing in FY2020 (IFS)

Impact on borrowing (£bn)

(A) Impact of changes in the economy

Smaller economy, assumed 5% GDP fall in 2020 +£74bn

Equity prices, assumed 30% fall +£6bn

Interest rates cut from 0.75% to 0.1% -£5bn

Quantitative Easing programme expanded by £210bn from £435bn to £645bn, mainly being used to purchase gilts

-£4bn

Total increase in borrowing from changes in the economy +£72bn

(B) Direct cost of fiscal measures implemented in response

80% Job Retention Credit up to £2,500 a month, under Job Retention Scheme (JRS)

Perhaps around £10bn, if 10% take-up among private sector employees over 3 months

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Increase in standard annual allowance in Universal Credit and associated changes to legacy benefits

+£4bn

Housing benefit increase for private sector tenants +0.8bn

Business rates support & grant funding +£20bn

Funding for devolved administrations for support to businesses

+3.5bn

Additional public service spending, for example for the NHS +5bn

Non-public service measures announced in the Budget: including cuts to business rates and more generous Statutory Sick Pay

+7bn

Total direct cost of fiscal measures, assuming 10% take-up of Job Retention Scheme

+50bn

Total, impact of COVID-19 on borrowing +£122bn

(C) Loans, guarantees & deferrals (size of commitment, not actual cost shown)

Guarantees £330bn

Coronavirus Business Interruption Loan Scheme for SMEs Loans of up to £5mn per business

Deferral of VAT payments in 2020Q2 £30bn

Source: IFS, “The economic response to coronavirus will substantially increase government borrowing”, 26 March 2020. As the IFS analysis makes clear, they assume that there will be a 10% take-up of the Job Retention Scheme (JRS), costing £10bn over three months. A more recent analysis by the Resolution Foundation, using take-up data from the British Chambers of Commerce (BCC), suggested the take-up could be appreciably higher than this. The Resolution Foundation concluded that at least a third of private sector employees could be furloughed (given leave of absence) and would be continued to be paid, whilst 80% of their pay would be reimbursed by a grant from the government to their employers.30-31 The cost to the Exchequer could then rise to £30-40bn over three months. Such potentially enormous increases in borrowing will need to be funded, of course. On this issue, there have been two main developments over the past fortnight:

The Treasury trebled its Budget plans to raise cash from markets in April as part of an “exceptional revision” to fund interventions to support the economy through the pandemic. The Debt Management Office (DMO) announced at the end of March it would seek to raise £45bn in April, a record cash issuance of UK government bonds (gilts), compared with an anticipated figure of £16bn at the time of the Budget (11 March).32

HM Treasury and the Bank agreed to extend temporarily the use of the government’s long-established Ways and Means (W&M) facility on 9 April 2020.33 The Bank said “…as a temporary measure, this will provide a short-term source of additional liquidity to the government if needed to smooth its cash-flows and support the orderly functioning of markets, through the period of disruption from COVID-19. The government will continue to use the markets as its primary source of financing, and its response to COVID-19 will be fully funded by additional borrowing through normal debt management operations. Any use of the W&M facility will be

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temporary and short-term. As well as temporarily smoothing government cash flows, the W&M facility supports market function by minimising the immediate impact of raising additional funding in gilt and sterling money markets. The W&M facility is the government’s pre-existing overdraft at the Bank. Any drawings will be repaid as soon as possible before the end of the year. HM Treasury, the Debt Management Office and the Bank will continue to cooperate closely to support the orderly functioning of the gilt and sterling money markets”.

Finally on the subject of the public finances, ratings agency Fitch downgraded the UK’s sovereign rating to AA- from AA on 27 March, reflecting the significant weakening of the country’s public finances due to the coronavirus outbreak and the fiscal loosening stance.34 The agency maintained the country’s outlook at ‘negative’.

Other indicators affected by the coronavirus outbreak

As pointed out above, the March labour market data will not be released until 19 May (though vacancies for March will be published a month earlier than this). In the meantime, other indicators may provide some guidance as to developments in the labour market. One possible indicator of the potential rise in unemployment has been the large increase in universal benefit claims in recent weeks (though note some universal benefit claimants/recipients are in work).35 It has been reported that about 723,000 people have applied for universal credit since the lockdown began (as at 13 April).36 Of these, 473,000 applied in the first eight days, almost as many as applied during the whole of the preceding three weeks, and almost 10 times as many as would apply in an average week. A further 250,000 people signed up during the second week of lockdown. While furlough payments are available to help the self-employed and those who cannot do their jobs during the pandemic, some groups, such as those who have recently became a freelancer, moved jobs or been made redundant before the cut-off date, are not eligible. This has helped prompt an increase in universal credit claims. In addition, surveys, including the ONS’s new BICS (see above), point to a deteriorating labour market. According to the March KPMG and REC (Recruitment and Employment Confederation), for example, staff recruitment has been badly hit by the COVID-19 outbreak (data collected 12-25 March).37 Permanent placements and temp billings both fell at the steepest rates since 2009 as firms cancelled or postponed plans to take on new staff, whilst there was a renewed drop in staff vacancies. Finally, a note on prices. As part of their “faster indicators” service, the ONS has begun an experimental weekly online price indices exercise for several high-demand products (HDPs). Overall, online prices of items in the HDP basket had increased by just 1.5% for the period 16 March to 5 April.38 For long-life food, and household and hygiene items, prices had remained fairly stable, with overall price increases of 0.8% and 0.7% respectively.

International developments: introductory remarks…

Suffice to say, the coronavirus pandemic is global (see annex table 3 for the latest data). And the economic implications are global. The IMF’s April World Economic Outlook is due to be published on 14 April and expected to make grim reading. Kristalina Georgieva, the IMF’s managing director, recently said the pandemic would turn global economic growth “sharply negative” this year. The world faced the worst economic crisis since the Great Depression of the 1930s. She forecast that 2021 would only see a partial recovery.39

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The IMF’s gloom was echoed by the World Trade Organization (WTO). The WTO has forecast of a total drop between 13%-32% in global goods trade for 2020 (trade recorded a 12% decline in 2009). The WTO’s director-general Roberto Azevêdo warned that “ugly” declines in commerce would bring “painful consequences” for households and companies in every corner of the world.40

…and some indicators

The latest Markit PMIs made for dreadful reading overall (see chart 3 and annex table 4 for the breakdown into sectors, with commentaries). The Eurozone data were especially grim, within which Italy (especially) and Spain were the most severely affected economies.41 In addition to the Markit surveys, there have been other recent Eurozone developments of interest. Firstly, there is further evidence for impending recession in the bloc’s two largest economies.42 According to Germany’s top economic research institutes the Germany economy will shrink by almost 10% in 2020Q2. This would be the sharpest decline since quarterly national accounts began in 1970 and double the size of the biggest drop in the 2008 financial crisis. Meanwhile, the shutdown of vast swaths of economic activity in France was estimated to be deducting 1.5 percentage points off French growth for every two weeks that it continues, according to the Banque de France. The second development was agreement by the EU finance ministers to a €500bn rescue package for European countries hit hard by the coronavirus pandemic.43 The main component of the rescue plan involves the European Stability Mechanism (ESM), the EU’s bailout fund, which will make €240bn available to guarantee spending by indebted countries under pressure. The EU ministers also agreed other measures including €200bn in guarantees from the European Investment Bank (EIB) and a European Commission project for national short-time working schemes. The US PMI data were worrying as well, though at face value not quite as worrying as in Europe. Markit commented that the implied decline was “…by far the largest overall decline in output registered since comparable data were available in late-2009”. The labour market, moreover, seems to be deteriorating quickly, as much of the economy is in lockdown. More than 6.6 million people filed unemployment claims in the week ending 4 April (the latest week for which data have been released).44 Over the three weeks to week ending 4 April, over 16 million people have made unemployment claims. The outlier related to China, which showed a marked improvement in March, compared with February.45 Markit commented the survey showed that “…the rate of decline eased notably from February’s record pace”. The overall index of 46.7 for March was still below the 50.0 no-change value but a substantial improvement on February’s 27.4.

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Chart 3 Markit composite PMIs, selected countries, for March

Sources: Markit surveys. See also annex table 4 for the breakdown and commentaries.

UK economic update

There have been the usual rush of data over the past fortnight. But, as they relate to a pre-coronavirus era, we will keep the commentary short (see annex table 5 for the data tracker).46 Concerning catch-up data for 2019Q4, the ONS confirmed that GDP was flat (QOQ) in 2019Q4 and growth in 2019 was 1.4%.47 The current account deficit narrowed significantly to £5.6bn (1.0% of GDP) in 2019Q4, compared with £19.9bn (3.6% of GDP) in 2019Q3, an improvement of £14.3bn.48 The narrowing in the deficit, however, mainly reflected a substantial reduction in the goods deficit, which was distorted by movements in precious metals (including non-monetary gold (NMG)). Turning to the annual data, the current account deficit was little changed, recording a deficit of £83.8bn (3.8% of GDP) in 2019, compared with a deficit of £82.9bn (3.9% of GDP) in 2018. On an annual basis, the intra-2019 volatility in the trade of NMG and other precious metals was not evident, according to the ONS. There were three main sets of indicators relating to February. The first of which related to the Bank of England’s credit data.49 These showed that consumer credit annual growth slipped to 5.7% in February, but mortgage approvals picked up. The second showed that GDP slipped 0.1% (MOM) in February.50 Services were flat, production rose a tad, but construction fell, reflecting the adverse weather conditions. Finally, the total trade (goods and services) surplus was £5.9bn in the three months to February, compared with a deficit of £1.1bn in the previous three months, an improvement of £7.0bn.51 The ONS pointed out that the data were distorted by movements in precious metals (including NMG) and they published an “underlying” series, excluding precious metals. The “underlying” balance also showed a surplus, but one of £1.4bn in the three months to February, compared with a deficit of £5.2bn with the previous three months, an improvement of £6.6bn. The ONS said that this is the first underlying three-month total trade surplus since comparable records began.

53 51.6 50.7 52 50.7 51.849.6

27.4

36

29.7

35

28.9

20.2

26.7

40.9

46.7

0

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20

30

40

50

60

UK Eurozone Germany France Italy Spain US China

Feb-20 Mar-20

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References

1. Ruth Lea, “The coronavirus crisis: recession looks all but inevitable”, Arbuthnot Banking Group, 30 March 2020.

2. Cabinet Office, “Staying at home and away from others (social distancing)”, 23 March 2020. “House moves should be delayed unless moving is unavoidable”.

3. Cabinet Office, “Staying at home and away from others (social distancing)”, updated 29 March 2020.

4. Daily Telegraph, “How long will the UK coronavirus lockdown last?”, 11 April 2020. 5. Alex Brummer, “Pain hits the boardroom”, Daily Mail, 7 April 2020. 6. Ruth Lea, “The coronavirus crisis: recession looks all but inevitable”, Arbuthnot Banking Group,

30 March 2020, discussed the Markit flash indicator for March. 7. Markit/CIPS, UK manufacturing PMI, “UK manufacturing output and new orders fall at quickest

rates since mid-2012”, 1 April 2020. 8. Markit/CIPS, UK services PMI, “Survey-record fall in service sector activity amid emergency

measures to slow COVID-19 pandemic”, 3 April 2020. This includes the composite indices. 9. Markit/CIPS, UK services PMI, “Survey-record fall in service sector activity amid emergency

measures to slow COVID-19 pandemic”, 3 April 2020. This includes the composite indices. 10. Markit/CIPS, UK construction PMI, “Construction work declines at the steepest rate since April

2009”, 6 April 2020. 11. ONS, “Coronavirus, the UK economy and society, faster indicators: data as at 2 April 2020”, 2

April 2020. 12. ONS, “Coronavirus, the UK economy and society, faster indicators: data as at 9 April 2020”, 9

April 2020. In addition to the BICS, the release includes price indices for several high-demand products (HDPs), weekly shipping data for the UK and the ONS’s new Opinions and Lifestyle (OPN) Survey.

13. ONS, “UK SIC 2007”. 14. Daily Telegraph, “Manufacturers told to start making thousands of ventilators”, 26 March

2020. 15. SMMT, “UK car production steady in February, down -0.8%, as sector braces for coronavirus

impact”, 27 March 2020. 16. SMMT, “UK new car registrations fall -44.4% in March as coronavirus crisis hits market”, 6 April

2020. 17. Charity shops are classified as retail. 18. Ministry of Housing, Communities and Local Government, “Government advice on home

moving during the coronavirus (COVID-19) outbreak”, 26 March 2020. 19. BBC, “Coronavirus: People urged not to move house,” 27 March 2020. 20. Halifax, “House prices were stable in March”, 7 April 2020. Halifax noted prices in March were

flat (QOQ), but were 3.0% up YOY. 21. BBC, “Coronavirus: Property sales down 70% since lockdown, says Zoopla”, 7 April 2020. 22. CityAM, “Calls for stamp duty holiday as UK house prices set to fall amid coronavirus crisis”, 9

April 2020. 23. Ruth Lea, “The coronavirus crisis: recession looks all but inevitable”, Arbuthnot Banking Group,

30 March 2020. 24. NIESR, “April 2020 GDP tracker: GDP could contract by 15-25% in 2020Q2”, 9 April 2020. 25. CEBR, “UK Prospects March 2020 – COVID-19 update”, 30 March 2020. 26. ONS, “GDP monthly estimate, UK: February 2020”, 9 April 2020. 27. Ruth Lea, “The coronavirus crisis: recession looks all but inevitable”, Arbuthnot Banking Group,

30 March 2020, discussed the measures to that date.

14

28. IFS, “The economic response to coronavirus will substantially increase government borrowing”, 26 March 2020.

29. OBR, Economic and fiscal outlook, March 2020. 30. BBC, “Coronavirus: What does it mean if I've been furloughed by work?”, 3 April 2020. 31. A furlough is a temporary leave of employees due to special needs of a company or employer,

which may be due to economic conditions at the specific employer or in the economy as a whole. These involuntary furloughs may be short or long term, and many of those affected may seek other temporary employment during that time.

32. BBC, “Coronavirus: Treasury trebles spending plans to fight virus”, 31 March 2020. 33. Bank of England, “HM Treasury and Bank of England announce temporary extension to Ways

and Means facility”, 9 April 2020. 34. Reuters, “Fitch cuts UK’s sovereign rating to AA- as coronavirus strains finances”, 27 March

2020. 35. Universal credit is a consolidated monthly payment for those of working-age, which replaced a

host of previous benefits including income-based jobseeker's allowance, housing benefit, child tax credit and working tax credit.

36. BBC, “Coronavirus: Six ways the lockdown has changed the UK”, 13 April 2020. 37. KPMG/REC (Recruitment and Employment Confederation), “Recruitment activity falls sharply

as COVI-19 pandemic hits the UK”, 8 April 2020. 38. ONS, “Coronavirus, the UK economy and society, faster indicators: data as at 9 April 2020”, 9

April 2020. 39. BBC, “Coronavirus: Worst economic crisis since 1930s depression, IMF says”, 9 April 2020. 40. The Times, “Global trade heading for an ‘ugly’ fall, says World Trade Organisation”, 9 April

2020. 41. Markit Eurozone composite PMI, final data, “Eurozone economy suffers record fall in activity

during March”, 3 April 2020. 42. FT, “Eurozone’s two biggest economies sink into historic recessions”, 8 April 2020. 43. BBC, “Coronavirus pandemic: EU agrees €500bn rescue package”, 10 April 2020. 44. BBC, “Coronavirus: US weekly jobless claims hit 6.6 million”, 9 April 2020. 45. Daily Telegraph, “Green shoots of recovery in China give cause for cautious optimism”, 1 April

2020. 46. Ruth Lea, “The coronavirus crisis: recession looks all but inevitable”, Arbuthnot Banking Group,

30 March 2020, has the last data tracker. 47. ONS, “GDP quarterly national accounts, UK: 2019Q4”, 31 March 2020. 48. ONS, “Balance of payments: 2019Q4”, 31 March 2020. 49. Bank of England, “Money and credit: February 2020”, 30 March 2020. 50. ONS, “GDP monthly estimate, UK: February 2020”, 9 April 2020. 51. ONS, “UK trade: February 2020”, 9 April 2020. Note, the equal and offsetting impacts of, firstly,

“net acquisition of valuables” (within gross capital formation) and, secondly, the movements of precious metals including non-monetary gold (NMG) (within the trade accounts) in the national accounts.

15

Annex

Table 1 Standard Industrial Classification (SIC)

Sections (divisions) GDP weights, per 100

GDP weights, per 100

A Agriculture, forestry & fisheries (1-3) 0.7

PRODUCTION (B-E): [19.7]

B Mining & quarrying (5-9) 0.6

C Manufacturing (10-33) 10.2

Of which: motor vehicles (29) … 0.9

D Electricity, gas, steam & air conditioning supply (35)

1.5

E Water supply, sewerage, waste management & remediation activities (36-39)

1.3

F Construction (41-43) 6.1

SERVICES (G-U): [79.6]

G Wholesale & retail trade, repair of motor vehicles & motorcycles (45-47)

10.5

Of which: motor vehicles (45), wholesale (46), retail (47)

Motor vehicles (1.7), wholesale (3.5), retail (5.3)

H Transportation & storage (49-53) 4.1

Of which: land (49), water (50), air (51), warehousing (52), postal/courier (53)

… Land (1.6), water (0.3), air (0.3), warehousing (1.3), postal/courier (0.6)

I Accommodation & food services activities (55-56) 2.8

J Information & communication (58-63) 6.6

K Financial & insurance activities (64-66) 7.2

L Real estate activities (68) 14.0

Of which: imputed rent (98.2IMP) … 9.8

M Professional, scientific & technical activities (69-75)

7.6

N Administrative & support service activities (77-82)

5.1

Of which: rental & leasing (77), employment (78), travel agency (79), office admin support (82)

Rental & leasing (1.1), employment (1.5), travel agency (0.6), office admin support (1.2)

O Public administration & defence (84) 4.9

P Education (85) 5.8

Q Human health & social work (86-88) 7.5

R Arts, entertainment & recreation (90-93) 1.6

S Other services (94-96) 1.7

T Activities of households as employers (97-98) 0.3

U Extraterritorial organisations & bodies (99), does not contribute to GDP

…

Sources: (i) ONS, “GDP quarterly national accounts, 2019Q4”, 31 March 2019, click on “GDP

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output approach – low level aggregates”: (ii) ONS, “UK SIC 2007”. A-U are sections; 1-99 are divisions. The ONS quotes GDP weights as per 1,000. Table 2 The Chancellor’s support measures

Date Measures

11 March 2020 Budget package of assistance measures, costed at £12bn, to support public services (including the NHS), individuals and businesses (including the Coronavirus Business Interruption Loan Scheme (CBILS)) affected by the outbreak.

17 March 2020 Package including, firstly, £330bn in loans and, secondly, £20bn in other aid (business rates holiday, and grants for retailers and pubs). The Covid Corporate Financing Facility (CCFF) was created, which would provide funding to “investment-grade businesses which were making a material contribution to the UK economy”. There was also an extension of the scope of the Coronavirus Business Interruption Loan Scheme (CBILS), announced in the Budget.

20 March 2020 Package, including paying 80% of salary for staff who are kept on by their employer (up to £2,500 a month) (the Coronavirus Job Retention Scheme (JRS)). It also included deferring next quarter of VAT payments, interest free cash grants to small businesses, self-assessment income tax payments for July 2020 deferred for six months, increasing standard Universal Credit of £20 a week, and nearly £1bn for those struggling to pay the rent.

26 March 2020 Assistance package for the self-employed, the Self-Employed Income Support Scheme.

3 April 2020 Coronavirus Business Interruption Loan Scheme (CBILS) amended. Firstly, applications will not be limited to businesses that have been refused a loan on commercial terms, extending the number who benefit. However, the Treasury has not capped the interest rates banks can charge. Secondly, banks will be banned from asking company owners to guarantee loans with their own savings or property when borrowing up to £250,000. Thirdly, larger firms with a turnover of up to £500m will also be eligible for more help - with state-backed loans of up to £25m available to firms with revenues of between £45m-£500m.

Sources: various, including (i) HM Government “Chancellor strengthens support on offer for business as first government-backed loans reach firms in need”, 3 April 2020; (ii) BBC, “Coronavirus: RBS says revamped loan scheme will make ‘big difference’”, 3 April 2020. Table 3 Coronavirus: reported cases and deaths, world and 12 most affected countries (13 April 2020)

World, country Confirmed cases Deaths

World 1,858,800 114,698

US 569,433 22,115

Spain 166,831 17,209

Italy 156,363 19,899

France 132,591 14,393

Germany 127,854 3,022

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UK 84,279 10,612

China 82,160 3,341

Iran 71,686 4,474

Turkey 56,956 11,988

Belgium 30,589 3,903

Netherlands 25,587 2,737

Switzerland 25,449 1,115

Source: https://www.worldometers.info/coronavirus/coronavirus-cases/ Table 4 Selected Markit surveys, PMIs: March 2020

Country (release date)

February reading

March reading

Comments

UK manufacturing (1 April)

51.7 47.8 Indicating contraction

UK services (3 April) 53.2 34.5 The slump was “…by far the fastest downturn in service sector output since the survey began in July 1996”.

UK composite (3 April)

53.0 36.0 There was “a slightly faster reduction in private sector output than that seen at the height of the global financial crisis”. The economy was “…now almost certain to experience a deep contraction in 2020Q2”.

UK construction (6 April)

52.5 39.3 This “…signalled the steepest fall in construction output since April 2009”.

Eurozone manufacturing (1 April)

49.2 44.5 Indicating contraction

Eurozone composite (3 April)

51.6 29.7 This was the “…biggest ever single monthly fall in March to hit a survey record low”. The four largest nations covered by the survey all registered record declines in activity, with Italy and Spain experiencing the sharpest reductions. “The Eurozone economy is already contracting at an annualised rate approaching 10%, with worse inevitably to come in the near future.”

Eurozone construction (6 April)

52.5 33.5 Construction activity falls at fastest rate for over 11 years

Germany manufacturing (1 April)

48.0 45.4 Indicating contraction

Germany services (3 April)

52.5 31.7 The survey “…posted a record month-on-month fall in March”.

Germany composite (3 April)

50.7 35.0 Survey low.

Germany construction (6 April)

55.8 42.0 Steep fall in activity.

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France manufacturing (1 April)

49.8 43.2 Indicating contraction.

France services (3 April)

52.5 27.4 “The result pointed to the sharpest contraction in service sector business activity since the survey's inception in 1998.”

France composite (3 April)

52.0 28.9 Survey low.

France construction (6 April)

50.2 35.2 Activity plummets.

Italy manufacturing (1 April)

48.7 40.3 Indicating severe contraction

Italy services (3 April)

52.1 17.4 “The decline was the most marked since data collection began over 22 years ago.”

Italy composite (3 April)

50.7 20.2 Survey low.

Italy construction (6 April)

50.5 15.9 A record drop in construction activity.

Spain manufacturing (1 April)

50.4 45.7 Indicating contraction

Spain services (3 April)

52.1 23.0 “The headline index pointed to an unprecedented drop in activity.”

Spain composite (3 April)

51.8 26.7 Survey low.

US manufacturing (1 April)

50.7 48.5 Indicating contraction

US services (3 April) 49.4 39.1 “US service providers registered the steepest decline in business activity since data collection began ten-and-a-half years ago in March as the COVID-19 pandemic led to business closures and sharply reduced client demand for services from both businesses and households.”

US composite (3 April)

49.6 40.9 “…by far the largest overall decline in output registered since comparable data were available in late-2009”.

China manufacturing (1 April)

40.3 50.1 This “…rose from a record low of 40.3 (February) to 50.1 in March, to signal a broad stabilisation of business conditions”.

China services (3 April)

26.5 43.0 This “…signalled a marked drop in service sector output. However, this was up from a record low of 26.5 in February, to indicate an easing in the downturn”.

China composite (3 April)

27.5 46.7 “The rate of decline eased notably from February’s record pace.”

Source: Markit website, including Markit Eurozone composite PMI, final data, “Eurozone economy suffers record fall in activity during March”, 3 April 2020. Also website

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www.tradingeconomics.com Table 5 UK economic data tracker

Date Release Source Quarter, year

Outcome

17 Mar Employment (3 months to Jan) ONS 2020Q1 +184k (QOQ), +271k (YOY)

17 Mar Unemployment (3 months to Jan)

ONS 2020Q1 +63k (QOQ), +5k (YOY)

17 Mar Unemployment rate (3 months to Jan)

ONS 2020Q1 3.9% (up 0.2pp, QOQ)

17 Mar Vacancies (3 months to Feb) ONS 2020Q1 Total vacancies: 817k, +19k (QOQ), -30k (YOY)

17 Mar Earnings (3 months to Jan), nominal

ONS 2020Q1 3.1% (YOY, total pay, including bonuses), 3.1% (YOY, regular pay, excluding bonuses)

17 Mar Earnings (3 months to Jan), real

ONS 2020Q1 1.5% (YOY, total pay, including bonuses), 1.5% (YOY, regular pay, excluding bonuses)

20 Mar Public Sector Net Borrowing (PSNB) (Feb)

ONS 2020Q1 £0.3bn (Feb 2020), compared with £0.6bn (Feb 2019)

20 Mar Public Sector Net Borrowing (PSNB) (FY2019, year-to-date)

ONS 2020Q1 £44.0bn deficit (Apr 2019-Feb 2020), compared with £39.9bn deficit (Apr 2018-Feb 2019)

20 Mar Public sector finances, public sector net debt (PSND) (end-Feb)

ONS 2020Q1 £1,791.5bn (end-Feb 2020, 79.1% of GDP), compared with £1,759.4bn (end-Feb 2019, 80.2% of GDP)

20 Mar Public sector debt interest/revenue ratio (DIR)

ONS FY2019 4.1% (FY2019)

25 Mar CPIH (Feb) ONS 2020Q1 YOY inflation: 1.7% (Feb), 1.8% (Jan)

25 Mar CPI (Feb) ONS 2020Q1 YOY inflation: 1.7% (Feb), 1.8% (Jan)

25 Mar PPI (output) (Feb) ONS 2020Q1 YOY inflation: 0.4% (Feb), 1.0% (Jan)

25 Mar PPI (input) (Feb) ONS 2020Q1 YOY inflation: -0.5% (Feb), +1.6% (Jan)

25 Mar Sterling effective exchange rate index (ERI) (Feb)

ONS 2020Q1 February: +0.4% (MOM), +2.4% (YOY)

25 Mar House prices (Jan, official) ONS 2020Q1 YOY growth: 1.3% (Jan), 1.7% (Dec, revised)

25 Mar House prices (Jan, official) ONS 2020Q1 -1.1% (MOM, non-seasonally adjusted), -0.4% (MOM, seasonally adjusted)

26 Mar Retail sales (Feb) ONS 2020Q1 Volume: -0.3% (MOM), flat (YOY)

26 Mar Retail sales (3 months to Feb) ONS 2020Q1 Volume: -0.6% (QOQ), +0.6% (YOY)

30 Mar Unsecured credit (Feb) BoE 2020Q1 Growth rate (YOY): 5.7% (Feb), 6.0% (Jan)

30 Mar Net mortgage borrowing (Feb) BoE 2020Q1 Growth rate (YOY):3.5% (Feb), 3.4% (Jan)

30 Mar Mortgage approvals for house purchase (Feb)

BoE 2020Q1 73,500 (Feb), 67,150 (6-month average)

30 Mar Net bank lending to non-financial businesses (Feb), of which:

BoE 2020Q1 Growth rate (YOY): 0.8% (Feb), 0.8% (Jan)

30 Mar SMEs BoE 2020Q1 Growth rate (YOY): 0.7% (Feb), 0.5% (Jan)

30 Mar Large businesses BoE 2020Q1 Growth rate (YOY): 0.9% (Feb), 0.9% (Jan)

31 Mar GDP, quarterly, 2019Q4, quarterly national accounts

ONS 2019Q4 GDP: +flat (QOQ), 1.1% (YOY)

31 Mar GDP: industrial breakdown (2019Q4)

ONS 2019Q4 Services: +0.2% (QOQ). Production: -0.7% (QOQ); Manufacturing

20

output: -1.1% (QOQ). Construction: -0.1% (QOQ).

31 Mar GDP: expenditure breakdown (2019Q4)

ONS 2019Q4 Household consumption: flat (QOQ). Government consumption: +1.5% (QOQ). GFCF: -1.2% (QOQ), within which business investment: -0.5% (QOQ). Inventories: £2.4bn of stockbuilding (excluding adjustments). Exports: +5.0% (QOQ), imports +0.4% (QOQ), positive contribution (recorded).

31 Mar GDP, annual (2019) ONS 2019 GDP: +1.4% (YOY, 2019), 1.3% (YOY, 2018)

31 Mar GDP: industrial breakdown (2019)

ONS 2019 Services: +1.8% (YOY). Production: -1.4% (YOY; Manufacturing output: -1.7% (YOY). Construction: +2.3% (YOY).

31 Mar GDP: expenditure breakdown (2019)

ONS 2019 Household consumption: 1.1% (YOY). Government consumption: 3.5% (YOY). GFCF: +0.6% (YOY), within which business investment +0.6% (YOY). Inventories: modest destocking (excluding adjustments). Exports: +4.8% (YOY), imports +4.6% (YOY)

31 Mar Current Account, Balance of Payments (2019Q4):

ONS 2019Q4 Balance: -£5.6bn (1.0% of GDP), -£19.9bn (3.6% of GDP, 2019Q3)

31 Mar Trade (goods & services) balance:

ONS 2019Q4 Balance: +£8.0bn (2019Q4), -3.2bn (2019Q3)

31 Mar Visible trade balance ONS 2019Q4 Balance: -£15.6bn (2019Q4), -£29.9bn (2019Q3)

31 Mar Services balance ONS 2019Q4 Balance: +23.5bn (2019Q4), +£26.7bn (2019Q3)

31 Mar Primary income balance ONS 2019Q4 Balance: -£7.1bn (2019Q4), -£9.7bn (2019Q3)

31 Mar Secondary income balance ONS 2019Q4 Balance: -£6.4bn (2019Q4), -£7.0bn (2019Q3)

31 Mar Current Account, Balance of Payments:

ONS 2019 Balance: -£83.8bn (3.8% of GDP), -£82.9bn (3.9% of GDP, 2018)

31 Mar Trade (goods & services) balance:

ONS 2019 Balance: -£25.9bn (2019), -£29.8bn (2018)

31 Mar Visible trade balance ONS 2019 Balance: -£127.7bn (2019), -£139.4bn (2018)

31 Mar Services balance ONS 2019 Balance: +£103.8bn (2019), £109.6bn (2018)

31 Mar Primary income balance ONS 2019 Balance: -£30.3bn (2019), -£27.5bn (2018)

31 Mar Secondary income balance ONS 2019 Balance: -£27.5bn (2019), -£35.6bn (2018)

1 Apr Manufacturing PMI (Mar) Markit-CIPS

2020Q1 Index: 47.8 (Mar), 51.7 (Feb)

3 Apr Services PMI (Mar) Markit-CIPS

2020Q1 Index: 34.5 (Mar), 53.2 (Feb)

3 Apr Composite PMI (Mar) Markit-CIPS

2020Q1 Index: 35.0 (Mar), 53.0 (Feb)

6 Apr Construction PMI (Mar) Markit-CIPS

2020Q1 Index: 39.3 (Mar), 52.5 (Feb)

7 Apr Productivity (output per hour), ONS 2019Q4 0.3% (QOQ), 0.3% (YOY)

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(2019Q4)

7 Apr Productivity (output per job), (2019Q4)

ONS 2019Q4 -0.5% (QOQ), flat (YOY)

7 Apr Unit labour costs per hour (2019Q4)

ONS 2019Q4 +2.3% (YOY)

9 Apr GDP, monthly (Feb) ONS 2020Q1 GDP: -0.1% (MOM), 0.3% (YOY)

9 Apr GDP: industrial breakdown (Feb)

ONS 2020Q1 Production: +0.1% (MOM); Manufacturing output: +0.5% (MOM); Construction: -1.7% (MOM); Services: flat (MOM)

9 Apr GDP (3 months to Feb) ONS 2020Q1 GDP: +0.1% (QOQ), 0.7% (YOY)

9 Apr GDP: industrial breakdown (3 months to Feb)

ONS 2020Q1 Production: -0.6% (QOQ); Manufacturing output: -0.4% (QOQ); Construction: -0.2% (QOQ); Services: +0.2% (QOQ)

9 Apr NIESR GDP tracker NIESR 2020Q1 GDP change: -0.5% (QOQ, 2020Q1); -15%/-25% (2020Q2)

9 Apr UK trade in goods & services (3 months to Feb 2020)

ONS 2020Q1 Trade surplus: £5.9bn

9 Apr UK trade in goods (3 months to Feb 2020)

ONS 2020Q1 Goods deficit: £18.7bn

9 Apr UK trade in services (3 months to Feb 2020)

ONS 2020Q1 Services surplus: £24.6bn