As the UK entered its first day of virtual lockdown yesterday, set to last for at least three weeks, critics have called for a clearer message from the UK Government around financial support for the self-employed, and a clear explanation of what is deemed as ‘essential travel’, as many continued to make their journeys to work, including cramming into London Underground tubes.
Last week the Government announced a new support scheme to help businesses pay the wages of their employees to cover 80% of worker’s salaries, however so far there have been no announcements providing support for around 5 million self-employed, pushing them to either continuing to work or risk losing their entire income. Finance Minister Rishi Sunak spoke yesterday suggesting that the Government was working on a package to assist those affected, expected to be released over the coming days, but that it would need to be fair and practical.
Covid-19 is already having a severe impact on the UK economy as new data released yesterday showed its economy to be shrinking at a faster pace than during the financial crisis of 2008-2009. The latest IHS Markit Purchasing Managers Index data captured last week, before the closure of all non-essential businesses including pubs and clubs, saw the economy shrink by 1.5-2%. To put this into context, during the worst point of the financial crisis the UK economy fell by 2.1% in one quarter. Chris Williamson from IHS Markit said “this decline will likely be the tip of the iceberg and dwarfed by what we will see in the second quarter”, with economists from Morgan Stanley predicting economic activity to fall by around or over 10% in the next quarter, rebounding to 5% over the course of the year if social restrictions are able to be relaxed in the final half of 2020.
If the pandemic continues for longer than current expectations, we could see the Bank of England step in and increase Quantitative Easing further (the central bank re-started its asset purchasing programme last week), which could cause further Sterling weakness.
Purchasing Managers Index data released for the Eurozone was also less than impressive yesterday, with activity in the Services and Manufacturing sectors both falling. Manufacturing fell from 49.2 to 44.8, although this was an improvement on the 39 expected, and the Services sector saw the steepest slowdown, falling from 52.6 to 28.4.
Italy has been the worst affected country so far by Coronavirus, with more fatalities than any other country. The latest figures at the time of writing showed that 6,077 people have died from the virus in less than a month, with the number of confirmed cases reaching 64,000. However, concerns are that this figure could potentially be 10 times larger as testing has only been limited to those seeking hospital care, and many cases could have gone undetected. That said, the official figures have fallen in the last 2 days after four weeks of steep increases in both cases and deaths, prompting optimism that the most aggressive phase of contagion may now be behind us.
The World Health Organisation stated yesterday that the US could become the global epicentre of the Covid-19 pandemic, as the latest figures showed that over the last 24 hours, 85% of new cases were in either Europe or the US, with 40% of those cases being in the United States. On Monday there were 42,000 cases, and at least 559 people had died from the virus, and the numbers has been accelerating rapidly since.
So far, the US Dollar has been the best performing currency since the Coronavirus outbreak, with GBP/USD Interbank exchange rates falling by over 8.79% over the course of this month, however its positive run slowed yesterday following from this concerning news, combined with negative US economic data released yesterday. Markit Services and Manufacturing data both fell compared to the previous releases, along with new home sales data. The Federal Reserve have been trying to support the economy and calm the financial markets after investors flocked to the US Dollars safe-haven status, by cutting Interest Rates by 150 basis points earlier this month. The latest efforts by the FED were released on Monday where it was announced that it would purchase bonds in ‘unlimited numbers’, which could continue to weaken the US Dollar.
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