The UK has crashed into a its deepest-ever recession after Covid-19 prompted the worst quarterly fall in output since records began.
Britain’s economy contracted by 20.4pc during the second quarter – between April and June – leaving it as the world’s worst-hit major economy. Only Spain’s economy contracted more over the first half of 2020.
Output continued to recover during June, rising 8.7pc, but wasn’t enough to counteract a plunge that, at its nadir, put GDP back at levels last seen in 2003.
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The period encompassed the biggest chunk of the UK’s lockdown, with many restrictions remaining in place throughout.
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12:40 PM
US inflation rise more than expected
US consumer price inflation rose more than expected last month, up 0.6pc on June and 1pc year-on-year.
The increase was driven by bigger-than-expected price increases on clothes and used cars, but remained subdued on an annual basis.
12:10 PM
Hostelworld takes major sales hit
Hostelworld suffered a significant drop in sales during the first half of the year as the pandemic restricted travel around the world.
My colleague Hannah Uttley reports:
The online booking platform said sales tumbled 69pc to €12m (£10.8m) in the six months to 30 June compared with a year earlier, while net bookings slumped 67pc as a result of higher cancellations.
Hostelworld recorded a loss before tax of €18.8m compared with a profit of €394,000 a year ago.
The firm provides booking access to more than 17,700 hostels across around 179 countries, with the majority of its sales coming from Europe.
Gary Morrison, chief executive, said the coronavirus crisis had caused significant disruption to the business and warned that the outlook for the travel sector remained “extremely challenging”.
Hostelworld said shareholder dividends remained suspended for 2020 due to uncertainty surrounding the crisis, but has proposed a ‘bonus issue’ which will see investors receive new ordinary shares worth €1 cent per share. The proposals are subject to shareholder approval.
11:47 AM
Spain and the UK find themselves in a similar boat
It’s not a title anyone should be vying for, but the UK and Europe look like the two biggest economic victims of Covid-19.
Both countries have seen their economies contract by more than a fifth since the start of the year amid high levels of excess deaths from the pandemic.
Why? Once answer is that, in a recession driven by a fall in consumer spending, both countries were uniquely exposed. As this chart shows, Spain and the UK’s higher levels of consumer spending on things like restaurants and culture made them highly vulnerable to lockdowns.
Spain was hit earlier, explaining why its GDP was weighted slightly more towards the first quarter of the year. It was able to ease restrictions quicker than the UK.
Oxford Economics’ Angle Talavera reckons Spain is the crisis’s “biggest economic loser” so far. He writes:
Given how badly the pandemic struck, Spanish authorities implemented one of the world’s most stringent and longest lockdowns. But the country’s economic structure is also a key factor for the impact.
A major tourism sector, a labour market with high share of temporary contracts, and many small and micro-enterprises all explain why the economic hit has been so devastating.
11:31 AM
Former Pinterest executive sues company
A former executive is suing Pinterest, claiming the social network sacked her after she complained about sexist treatment and was marginalised for months.
My colleague Margi Murphy reports:
Francoise Brougher, who left her role as chief operating officer at Pinterest in April, accused the company of paying her less than her male colleagues when she joined the company and belittling her work as “championing diversity issues”, according to documents filed in San Francisco Superior Court on Tuesday.
“Even at the very top ranks of a public company, female executives can be targeted for sex discrimination and retaliation,” the lawsuit stated. “Although Pinterest markets itself to women looking for inspiration, the company brazenly fired its top female executive for pointing out gender bias within Pinterest’s male dominated leadership team.”
Elon Musk’s Tesla is set to make its shares more affordable to backers after announcing a five-way stock split, the first in its history, on the back of a record year of growth for the electric car maker.
My colleague Hasan Chowdhury reports:
The company said on Tuesday that the share split would be made as a dividend distribution that would give four additional shares of “common stock” to stockholders recorded as of August 21. The stock split will come into effect on August 28.
Stock splits are usually made by companies as a means of incentivising smaller, retail investors to trade in its shares. Tesla’s stated goal is to “make stock ownership more accessible” to employees and investors. The company's shares surged 6pc to $1,459 (£1,117) in extended trading after the news about the split came out.
It comes as Tesla has seen a more than 200pc surge in its share price since the start of the year, taking it to record heights of almost $1,500.
The UK’s five-year gilt yield has returned to positive territory for the first time since late June, as bond prices continue to fall following this morning’s data (which, as a reminder, was slightly better than investors expected).
09:55 AM
Market moves
With nearly three hours of trading passed, European stock markets are slightly higher, with the FTSE 100 as the standout. I’ll take a closer look at some individual equity moves shortly.
09:50 AM
More GDP reaction: Long road to recovery
The UK’s newest, deepest recession was driven primarily by a plunge in consumer demand, says Citi economist Benjamin Nabarro, He writes:
Usually in recessions the fall in investment is significantly larger than that in consumption; this is not the case this time. High levels of income support also mean household balance sheets are likely emerging from the current crisis in a stronger position. The key question is whether households are now willing to lever this to drive stronger consumption over the coming quarters.
Here we think the prospects appear weak. Accumulated saving seems to have been concentrated in wealthier households – implying a smaller subsequent boost to consumption. Lingering virus fears and growing labour market concerns are also likely to weigh.
Citi - Citi
Investec’s Victoria Clarke says June was the “silver lining” in today’s data. She added:
One key challenge is keeping the economy from losing momentum in the later part of the year and in the early part of 2021. The headline unemployment rate, unmoved from its pre-pandemic positon, is not reflecting the full extent of the disruption in the jobs market, amidst a rise in inactivity.
Furthermore, as we approach the end of the furlough scheme which concludes at the end of October, a rise in unemployment (and potentially more inactivity) appears likely. As such we would see both of these forces weighing down on consumer momentum somewhat. Moreover warnings of a severe second wave of the coronavirus persist and bring with them a prospect of wider lockdowns during the winter creating a further impediment to recovery.
Apologies, the subhead on the first chart of my previous post should say June, not May. That has been corrected – please refresh the page if you can still see the old version.
09:09 AM
Eurozone production recovery continued in June
Industrial production in the eurozone continued to recover during June. The pace of recovery suggests it may have returned to normality by now, but it’s worth noting many companies are thought to have cleared their backlogs as they resumed operations.
08:54 AM
Asos shares jump as it raises outlook
Asos - REUTERS/Suzanne Plunkett/File Photo
Asos shares soared on Wednesday after the online fast fashion retailer said sales and profits will be significantly better than expected this year.
My colleague Simon Foy reports:
Annual pre-tax profit would be between £130m to £150m on revenues almost a fifth higher than in 2019.
Shares jumped 8pc to £46.46 and have posted a remarkable recovery since falling to almost £10 in mid-March.
The bullish update comes after lockdown increased demand for sportswear and beauty products, with Asos reporting a “sustained reduction” in returns rates since April.
The fall in returns represented “a prolonged shift in customer behaviour towards more deliberate purchasing across all product categories”, the company said.
The official definition of a recession is hardly the most important challenge facing the UK right now.
My colleague Tim Wallace has taken a close look at the road ahead. He writes:
What really matters is how fast the economy claws its way back up to its pre-pandemic level.
“The economy” in this instance really means people: how soon will people return to their old patterns of behaviour, or at least equivalent levels of spending and working, even if they do it in a slightly different way?
It should, in theory, be possible to get back to normal almost as fast as the official restrictions lift and industries are allowed to get back to work.
Sterling is broadly unmoved by this morning’s data. The pound strengthened against the dollar heading into the 7am release ) (which, let’s remember, was narrowly better than expected), and rose a fraction of a cent afterwards.
08:09 AM
Gilt prices fall after GDP data
UK bond prices have dropped in the wake of this morning’s data, sending yields (which move inversely to prices) slightly higher.
The two-year bond has re-entered positive territory this week after a long sub-zero period, with the five-year further behind and still negative.
The discrepancy between the two (you would usually expect a long-dated debt to offer a higher yield) suggests investors feel more confident about the UK’s economic prospect in the short term than over a medium view.
07:54 AM
Full report: Britain enters recession
My colleague Lizzy Burden has a full report on this morning’s growth data. She writes:
Output fell 20.4pc between April and June, the biggest three-month fall on record, according to the Office for National Statistics (ONS).
This follows a 2.2pc dip in the first quarter, nudging the country into a technical recession, which is defined as two consecutive quarters of declining GDP.
The data showed that the economy suffered more than any other advanced nation because it is so heavily dominated by the service sector. Spain saw an 18.5pc second-quarter fall, Germany dropped 10.1pc and the US lost 9.6pc.
European markets have opened higher, with the FTSE 100 leading risers despite this morning’s data. Investors are likely to read around the historic drop, and focus more on the signs of a rebound.
Bloomberg TV - Bloomberg TV
07:28 AM
Worst recession on record
As ‘technical’ recession go, this is already the worst on record – easily eclipsing the 6pc fall during the financial crisis. It’s highly likely that it will also be sort – it would be almost unthinkable for output not to increase output during the third quarter as the economy reopens.
07:13 AM
UK trade balance widens to biggest surplus since 1998
The UK’s trade balance, excluding non-monetary gold and other precious metals, widened to £8.6bn in the second quarter – marking the biggest underlying surplus since 1998.
A fall in goods imports drove the rise, as the ONS notes:
The increase of the underlying total trade balance was because of imports falling by £35.2bn, while exports fell by a lesser £26.7bn.
06:57 AM
Sunak: ‘Hard times are here’
Chancellor - Anthony Upton/The Daily Telegraph/PA Wire
Responding to today’s GDP figures, Chancellor Rishi Sunak said:
I’ve said before that hard times were ahead, and today’s figures confirm that hard times are here. Hundreds of thousands of people have already lost their jobs, and sadly in the coming months many more will.
06:55 AM
UK GDP reaction: Growth momentum will run out
Today’s dire GDP data at least has a silver lining in June’s output recoveries.
That won’t last, cautions Samuel Tombs of Pantheon Macroeconomics. Warning the UK “has underperformed its peers to an extraordinary degree” – something which can be attributed to the UK’s reliance on consumer services spending – he said:
Nonetheless, consumers’ spending likely has been boosted recently both by the release of pent-up demand and lower than usual levels of foreign travel over the holiday season. Output in the manufacturing and construction sectors also likely has overshot its sustainable level, as firms have hurried to complete work backlogs.
Meanwhile, the recovery in new Covid-19 infections – the seven-day average on August 11, 928, was 70% above its July 8 low – suggests that the reopening has gone as far as it can while keeping a lid on the virus through the winter.
Pantheon Macroeconomics/ONS
Tej Parikh, chief economist at the Institute of Directors, said the figures “highlight the painful reality households and businesses across the country are facing”. Calling on Chancellor Rishi Sunak to offer further job support, added:
Job losses have been mounting, and may only increase as we reach the end of the furlough scheme. The pile of debt businesses have had to take on could also cause a lasting hangover. With flimsy balance sheets, directors will find it difficult to push ahead with spending plans. Meanwhile, sales and operations will remain limited by the need for social distancing and ongoing uncertainty around the virus.
06:47 AM
Sectors show continued recovery in June
On a monthly basis, June marked a recovery across services, manufacturing and construction – with Britain’s builders seeing the biggest jump in output:
06:40 AM
All sectors decline
On a headline sector level, April to June marked a continued slump in output, with construction taking the heaviest hit despite many sites reopening across the period.
Here’s how far each sector recovered during June – and how much more recovery is needed:
06:33 AM
Accommodation and food services takes biggest hit
The impact of Covid-19 was all-encompassing, with a negligible output rise for the public admin and social security industry the only trend-beat move.
The heaviest hit landed upon accommodation and food services, which say output shrink 86.7pc across the quarter.
Restaurants in England reopened in mid-July, so this second-quarter period (from April to June) shows the impact at its most extreme.
Data released since then has shown a pickup in the number of Brits eating out, while the Governmnet’s voucher scheme also appears to been giving the sector a boost.
The ONS has given a breakdown of some sector-by-sector output shifts here:
ONS - ONS
06:20 AM
Heaviest economic hit
Although Japan is still yet to report (economists expect a 7.6pc contraction from the group), today’s figures confirm the UK likely suffered the biggest second-quarter economic hit of any major economy from Covid-19. Spain’s contraction is slightly larger when viewed over the full first half of the year.
06:17 AM
How the drop compares
Data from the Bank of England gives a (slightly patchy) picture of quarterly GDP contraction going back more than a century. Even by that extended record, the second quarter was the worst ever – dwarfing even the previous record fall, which occurred during the post-First World War economic tumult.
06:05 AM
17 years of growth wiped away
That GDP wipeout brings UK output back to 2003 levels.
The ONS says:
This is the largest quarterly contraction in the UK economy since Office for National Statistics (ONS) quarterly records began in 1955, and reflects the ongoing public health restrictions and forms of voluntary social distancing that have been put in place in response to the coronavirus (COVID-19) pandemic. In level terms, real GDP was last lower in Quarter 2 2003.
06:01 AM
UK economy shrank 20.4pc in second quarter
Just in: the UK economy shrank 20.4pc in the second quarter.
GDP grew 8.7pc in June, beating expectations slightly.
More follows...
05:54 AM
Total Covid-19 spending nears £100bn
One quick thing while we wait for the GDP reading: HM Treasury has (belatedly) released the latest figures for the Government’s Covid-19 spending, which shows the total is nearing £100bn:
Here’s a breakdown by scheme:
05:45 AM
What to expect today
GDP data tend to have a slew of sub-measures, so I’ll work through everything as quickly as possible after the Office for National Statistics publishes its data at 7am.
Here are the consensus expectation for today’s figures, based on polling conduct by Bloomberg:
March GDP month-on-month change: +8pc
Second-quarter GDP quarter-on-quarter: –20.7pc
Second-quarter GDP year-on-year: –22.3pc
The chance of the UK having shown economic growth between April and June is, sadly, zero. With that in mind, today’s figures will mark two successive quarters of contraction: the definition of a “technical recession”.
05:39 AM
Agenda: Crunch time
Good morning. US stocks reversed course yesterday to end in the red, with all three major indices dropping and the broad S&P 500 closing lower for the first time in eight days.
European equities, however, got an extra shot in the arm from economic surveys painting a brighter picture than had been feared for the area’s recovery prospects.
Today is all about GDP: the UK will get its monthly reading on the change in the size of the economy during June at 7am.
That will round out the second quarter, which is expected to be the worst ever recorded (quarterly data compiled by the Bank of England goes back, with some holes, more than a century). June’s monthly data will likely show somewhat of a recovery.
5 things to start your day
1) First-time buyers find property ladder even more slippery: The number of first-time buyers has slumped by almost a quarter since 2006 as the housing crisis deepened with about 243,000 transactions made in 2018, its economists calculated.
2) Zoono drops UK claim of 30-day protection: Zoono claims on its UK website that its Z-71 sanitiser – used by rail companies including tube operator Transport for London and Govia Thameslink – “helps to protect for up to 30 days on surfaces”.
3) Europe's economic winners and losers from the Covid crisis: While countries that were forced into long-lasting and severe lockdowns to control their outbreaks have suffered most, the structure of economies and governments' war chests will also help determine the speed and strength of the recovery.
4) Airbnb pushes toward IPO as it recovers from travel slump: The company expects to file confidentially for an initial public offering as soon as this month, The Telegraph understands. The company could be worth more than $30bn (£23bn) after emerging from the pandemic-induced travel slump stronger than many had expected.
5) Financier defends role in controversial £253m PPE contract: Tim Horlick – whose company Ayanda Capital won the taxpayer-funded contract at the height of the Covid crisis–- denied suggestions of cronyism. He said Ayanda had the relevant skills for the job despite questions over its previous experience in the industry.
What happened overnight
Shares were mostly lower in Asia on Wednesday after Wall Street pumped the brakes on its recent rally.
Tokyo’s Nikkei 225 index edged higher while the Shanghai Composite sank 2pc.
Overnight, a late slide in big technology companies left indexes broadly lower on Wall Street, breaking a seven-day winning streak for the S&P 500.
A discouraging lack of progress on talks over more economic aid for the US economy, coupled with worries over the coronavirus pandemic and tensions between the US and China, have prompted investors to sell and lock in profits from recent gains, analysts said.
The Nikkei 225 gained 0.4pc to 22,848.24, while Hong Kong's Hang Seng edged 0.2pc lower to 24,845.57. In South Korea, the Kospi was flat, at 2,418.32. The Shanghai Composite index lost 66 points to 3,273.75. Australia's S&P/ASX 200 declined 0.5pc to 6,107.20.
Shares fell in Taiwan, India and most of Southeast Asia.
Coming up today
Interim results: Admiral Group, Avast, Balfour Beatty, Capital & Counties, CLS, Hostelworld, Just Eat Takeaway.com, M&G, Spirax-Sarco
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A third panel of potential jurors will be questioned Friday in Donald Trump’s hush money case, drawing jury selection a step closer to completion in the first criminal trial of a former U.S. president. Thursday's court proceedings demonstrated unpredictability in the jury selection process of such a high-profile case, with two jurors who had been seated a day earlier being dismissed from the panel. The judge has suggested that opening statements in the criminal trial could begin as early as Monday, before prosecutors begin laying out their case alleging a scheme to cover up negative stories Trump feared would hurt his 2016 presidential campaign.
One woman miscarried in the restroom lobby of a Texas emergency room as front desk staff refused to admit her. Another woman learned that her fetus had no heartbeat at a Florida hospital, the day after a security guard turned her away from the facility. Complaints that pregnant women were turned away from U.S. emergency rooms spiked in 2022 after the U.S. Supreme Court overturned Roe v. Wade, federal documents obtained by The Associated Press reveal.
The Federal Aviation Administration and United Airlines are investigating after a video surfaced showing an unauthorized person in the pilot’s seat during a flight charted by the Colorado Rockies baseball team.
A 16-year-old boy accused of stabbing two Christian clerics during a Sydney church service has been charged by police with terrorism offenses. Authorities said the stabbing was declared a terrorist act because of the teenager’s suspected religious motivation and that the boy traveled up to 90 minutes from his home to the Christ the Good Shepherd Church in Sydney's western suburbs. The teen spoke in Arabic about the Prophet Muhammad being insulted after he stabbed Bishop Mar Mari Emmanuel and the Rev. Isaac Royel during Monday night’s Assyrian Orthodox service.
Polls will open Friday for the first phase of India’s marathon general election, kicking off a vote in which Prime Minister Narendra Modi is seeking to win a rare third consecutive term.
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