Friday 19 June 2020

600,000 unemployed in UK since Corona but QE re-starts

Interesting week of economic news in the UK to round-up:

- The ONS estimates around 600,000 people have lost their jobs in the last 3 months, but that this total will continue to increase sharply as the furlough scheme rolls off. Equally, job creation still remains quite high and also will continue as new companies appear to replace those impacted by Covid-19.

- The Bank of England thinks the economy shrinking 20% in Q3 is a good result as it had feared a 27% fall - however, it and the ONS estimates are very shaky for huge sectors of the economy like Travel and Leisure.

- The Bank of England also has put another £100 billion of quantitative easing into the economy. This will be huge boost to money supply which was lacking as demand fell away so much across the economy.

The big impact is that this money, together with the Federal Reserve, has succeeded where they failed in 2008. We had a 25% sell-off but the bounce back, supported by the Central Banks, has been impressive considering the circumstances. To me still it is only putting off the inevitable and cushioning the blow. However, that may in itself help to temper the worst of the recession. Funds and Asset Managers still have a 'risk-on' mindset.

I still think we are in for a choppy few months and an eventual nasty crash, but with the huge pump priming of the money markets, asset prices will hold up as those lucky recipients of free money it swap it for real assets.


andrew said...

when you say 'real assets', what do you mean?

I do not have a good feeling about anything other than (possibly) CHF.

dearieme said...

I noticed an article in today's Telegraph arguing that a cut in VAT would be a pretty useless move in our present circs. The gist was that the problem will be that people won't, or won't be able to, return to their previously normal life and its spending patterns.

The writer thought that the jobs that will be lost because of this won't be counteracted by knocking a few quid off the price of a new telly.

It sounded persuasive to me. But what then should we do?

Sobers said...

"But what then should we do?"

Make it easier to employ people. Abolish employers NI, pension contributions, reduce restrictions on employing (and firing) people. Any business employing under (say) 10 people, no employment law at all, bar basic minimum wage and holiday entitlement. If you can't make people go out and spend at least make it as easy as possible for employers to keep employing, or indeed hire new employees.

CityUnslicker said...

Sobers +1.

Lowering employment taxes will be one of the best ways to manage the situation. I actually thinnk a VAT reduction is not a bad way of spurring spend at leisure and retail desitnations. Also abolish the air passenger duty to get people flying again. basically all hits to bits of the economy that need support. if you need to raise money, finally put in some digital taxes to restrain the overheating part of the economy.

Andrew - Yup those are real assets, except cash. Real assets tend to rise in value as money is pumped into a system - as we saw in 08 and 09 - inflation effectively gets hidden from the real economy as it channels into share prices etc. Side effect for governments is high bond prices = low yields. It is why they are so addicted to QE.

Charlie said...

Does anybody else see a difference between this round of QE and previous printing?

This lot is going to be used to monetise government debt, rather than be given to banks to hoard. The government WILL spend it into the economy. I see this round as being potentially far more inflationary than what has gone before.

E-K said...

CU @ 3.00

Unfortunately you have an establishment hell bent on not going back to all that.

Beavering away restricting fossil fuel transport by putting things such as cycle lanes in before road traffic returns to normal.

dearieme said...

"Make it easier to employ people. Abolish employers NI, pension contributions, reduce restrictions on employing (and firing) people. Any business employing under (say) 10 people, no employment law at all, bar basic minimum wage and holiday entitlement."

That has the huge advantage of being a good move anyway, COVID or no COVID.

Matt said...

Minimum wage doesn't help employment.

Anonymous said...

"Minimum wage doesn't help employment"

But in an economy with a huge oversupply of foreign labour its necessary. We didn't need one in 1970 or 1990 come to that.

I see that all these meat plants closing because of coronavirus are big employers of Poles and Romanians. They aren't big on social distancing to put it mildly.

"Overrun by Romanians from management to workers, who bully anyone who isnt Romanian and favouritism given to their fellow Romanian workers. Alot of theft, my phone went missing from my bag and and damage to my motorbike while I was there to which the management simply said it’s not my problem. What happened to duty of care from your employer!? Very bad attitude from management who have no care for you as a worker. No social distancing or PPE, do not put your life at risk to pack chicken."

This is in Anglesey!

Matt said...

How does a minimum wage help people bullied by foreign workers?

Anonymous said...

It helps people when the labour market is distorted by the political decision to undercut native labour with "cheap" imports - which in the long run are very expensive, but the costs fall upon society as a whole.

Nessimmersion said...

Easiest One hit to get the economy moving again is cancel the CCA, Climate Change Act, then let the market allocate resources now that all energy costs are a magnitude cheaper.
Bear in mind that the CCA impact is primarily through cosy business arrangements which price energy to do anything in the UK to ludicrously high levels, not necessarily tax, just removal of the most economically sensible options.

Anonymous said...

Lots of overshooting and undershooting of forecasts (deaths, cash, economic output) going on as is usual in these sorts of crises. After all hindsight is not a perfect science. (See more recent post)

Know of a UK based tourism company valued at about £500m. They were due to run out of cash this month, and had lined up £35m of loans and overdrafts. Future bookings now so strong, they've sent the cash back though they have had to swallow the fee.

Banks just can't help make money in these times.

Matt said...

@ Anonymous

No, it won't make any difference. If the minimum wage is too high then business won't take on more staff. Instead (some) will pay cash-in-hand and more imported labour will be working for them.