An early assessment of the impact of the coronavirus pandemic on the UK’s financial accounts has been published by the ONS. As restrictions continue to be eased and the workforce returns in certain sectors, June has seen a clearer picture emerging of how the UK is faring in its recovery.
Stock market volatility during June mirrored the same movement seen during the 2008/2009 financial crisis. All sectors experienced steep unprecedented falls in the value of listed shares in their balance sheets, resulting in the biggest fall since records began in 1987. This reflected increased investor concerns during the corona pandemic.
Globally, UK equities were the weakest because of a 25% fall in the FTSE 100 index. The index showcases the share price of the largest public companies on the London Stock Exchange. The exchange suffered its worst quarter in three decades, with UK company shares also falling by 25% despite hitting a record high in January.
The impact of the pandemic has been different to other financial crises as there has been a reduction in both supply and demand. The restrictions wiped out revenues for companies in several industries, most notably tourism & travel and the energy sector. Blue-chip companies were hit particularly hard. This was because of a combination of the fall in demand in tourism & travel, the fall in the supply of oil because of the Russia Vs Saudi price war, and reduced exporting because of affected operations.
Bank of England’s findings show a “flight to safety” in financial markets resulting in an extreme “dash for cash” in mid-March as the prices of riskier assets (such as equity) fell. This led to a surge in the demand for safer and more liquid assets, such as deposits. As company shares fell, monetary financial institutions (MFIs) issued the largest value of short-term loans since 2007.
The “dash for cash” suggests that these sectors are taking the loans from the MFIs and depositing the cash instantaneously in order to keep afloat. This is consistent with findings from the Bank of England’s Agents’ summary of business conditions. The summary reported widespread cash flow problems as a range of sectors saw their revenues decline sharply.
The start of the flexible furlough scheme on July 1st saw tentative movement within sectors such as Finance. HSBC began to repopulate its 45-floor Canary Wharf tower from July 1. For the first three months, it expects only 10-20 per cent capacity in order to maintain social distancing. Those working on the trading floor will be among the first to return. Barclays is expected to have about 200 more staff returning to its 32-floor Canary Wharf tower over the next three weeks. However, the Bank’s CEO has hinted that the shift to homeworking will be on a more permanent footing for future operations.
Meanwhile, the impact on the sectors worst hit by the pandemic has seen the first wave of redundancies. The EU’s jobless rate rose to 6.6% in April, from a 12-year low of 6.4% the previous month, according to Eurostat – the biggest rise in several years. In the UK, British oil giant BP announced plans to cut 10,000 jobs by the end of the year, while BA, Easyjet, Virgin Atlantic and Airbus all announced major job cuts.
Unemployment continues to be a major financial concern among adults, with the number of people reporting that that they found it difficult to pay usual household bills rising from one in 20 to over 1 in 10 (11%) of adults. More than 1 in 10 adults also reported that they have had to borrow more money or use more credit than usual since the coronavirus pandemic.
Despite the job cuts in many areas, new data from LinkedIn on the UK labour market shows some uplift in the hiring rate, which climbed 18% during June. At industry level, Legal, Software & IT Services and Corporate Services have seen the strongest rebound in hiring. These industries are now trending at -16/17% year-on-year.
However, the latest figures show that the rate of recovery is uneven across sectors. Despite the easing of lockdown restrictions, hiring in Retail (-34%) and Entertainment (-51%) showed little or no improvement over the last two weeks. Separate research also suggests that consumers might be feeling anxious about returning to stores to shop, with more than half of UK customers saying they will shop less on the high street.
There are, however, some notable exceptions to the retail slump, with DIY and home-based stores reporting major uplift. Retail giant IKEA reported record sales thanks to its ability to roll with the punches. The company is also continuing to focus on “completing the digital layer”, making more products available to customers online and via an IKEA app so people can access the stores 24/7.
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