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UK lockdown reduces consumer spending to lowest levels since last spring

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UK lockdown reduces consumer spending to lowest levels since last spring

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Britain's tough new lockdown measures have dented consumer confidence and reduced spending to levels not seen since last spring, according to two separate surveys.

Both the British Retail Consortium and Barclaycard said spending in January was at its weakest since May as booming online activity failed to compensate fully for the closure of stores.

One of Britain's leading thinktanks, the National Institute of Economic and Social Research (NIESR), added on Monday that after the UK's sluggish start to 2021 it had cut its forecast for growth this year and put back the start of the recovery.

Barclaycard said consumer spending last month was down by more than 16% year-on-year, while the monthly BRC/KPMP retail sales monitor showed that 63% of all non-food shopping took place online in January - a doubling from the 31% seen a year previously.

Helen Dickinson, the BRC's chief executive, said: "January saw retail sales growth decline to its lowest level since May of last year. The current lockdown has hit non-essential retailers harder than in November, with the new variant hampering consumer confidence and leading customers to hold back on spending - especially on clothing and footwear."

Raheel Ahmed, Barclaycard's head of consumer products, said: "As the impact of the latest lockdown start to takes its toll, we've seen particular sectors struggle, as physical premises across the UK were forced to close. Last month's glimmer of hope for the travel sector also seems to have stalled as tougher border controls saw bookings drop."

In its quarterly update, the NIESR said it now expected the economy to grow by 3.4% in 2021 compared with the 5.9% it had been expecting in November.

The NIESR said the UK would be one of the weakest advanced economies in the first three months of 2021. It believes unemployment will rise sharply after the government's furlough scheme ends in April and will reach 2.5m - or 7.5% of the workforce - by the end of the year.

"To prevent a rise in unemployment of the magnitude of the forecast, and to limit the economic and social 'scarring' from the public health crisis, the chancellor should soon announce policies to support the labour market beyond April," it said.

The thinktank was less optimistic than the Bank of England about the time it would take for the economy to recover fully from the pandemic, predicting that it would take until late 2023 before output was back to the level reached in the fourth quarter of 2019.

Last week, Threadneedle Street said it envisaged a return to pre-Covid 19 levels by the start of 2022 but the NIESR said uncertainty about future variants of the coronavirus, continued physical distancing, more trade barriers with the EU as a result of Brexit and the weakness of productivity in the years before the pandemic would mean only a gradual recovery.

Hande Küçük, a NIESR deputy director, said it would take time to make up the lost ground, just as it had after the global financial crisis of 2008-09 when it took five years to return to the pre-recession peak.

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UK lockdown reduces consumer spending to lowest levels since last spring

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Britain's tough new lockdown measures have dented consumer confidence and reduced spending to levels not seen since last spring, according to two separate surveys. Both the British Retail Consortium and Barclaycard said spending in January was at its weakest since May as booming online activity failed to compensate fully for the closure of stores.

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Oil prices climb back to pre-pandemic levels

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Oil prices climb back to pre-pandemic levels

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By Justin Harper
Business reporter, BBC News

The price of oil has recovered to its pre-pandemic levels having hit an all-time low last year.

While demand for oil is still lower than normal, there are hopes of a speedier than expected economic recovery as vaccines are rolled out.

Oil prices are often seen as a barometer for economic activity, still struggling with the virus downturn.

"Black gold" has now reached $60 a barrel having risen more than 50% in the last few months.

Brent crude, the major benchmark for oil, has seen strong growth recently. Futures contracts, which are based on the price of future delivery, have jumped 59% since November.

West Texas Intermediate (WTI), the benchmark for US oil, last week rose above $55 a barrel for the first time in over a year.

"The biggest driver for the latest surge in prices seen through last week was a sharp upturn in expectations for economic and oil demand recovery on signs that the coronavirus may finally be in retreat," Vandana Hari, founder of Singapore-based oil markets data firm Vanda Insights told the BBC.

Demand has been rising in parts of the world, particularly Asia. "We are quite optimistic about what it is that we are seeing in China," Royal Dutch Shell chief executive Ben van Beurden said last week.

Other factors have also played their part to push up prices such as efforts by oil-producing nations, particularly Saudi Arabia, to limit output.

Since agreeing to the cut in production last April, producers have held back a cumulative 2.1 billion barrels of oil, leading to decreasing stockpiles.

The coronavirus crisis has been devastating for the petroleum industry, and last year prices slumped below zero with more than one billion surplus barrels.

Online boom

Demand for fuel from airlines has seen the most dramatic fall as travel curbs remain in place. Air passenger traffic is 70% below year-ago levels, according to the International Air Transport Association.

But demand has picked up in other areas, thanks in part to the shift to working and consuming more from home.

As consumers are buying more online, this has spurred demand for fuel to power delivery trucks and vans, along with cargo ships and and freight trains.

The e-commerce boom has also caused a spike for plastic packaging, which is made using oil products.

However, oil demand is still lower than pre-pandemic levels and a slow economic recovery would delay a full rebound in world energy demand for years to come, the International Energy Agency warned last month.

"There could be more setbacks in the spread of the virus or the vaccinations, causing a pullback in prices, though short of another crisis," added Ms Hari.

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Oil prices climb back to pre-pandemic levels

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By Justin Harper Business reporter, BBC News The price of oil has recovered to its pre-pandemic levels having hit an all-time low last year. While demand for oil is still lower than normal, there are hopes of a speedier than expected economic recovery as vaccines are rolled out.

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Brexit effect: No custard creams for Brits in Europe

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Brexit effect: No custard creams for Brits in Europe

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Video

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British supermarkets that have stores in Europe are facing supply problems because of post-Brexit rules on exports to the EU. It's affecting fresh produce at 20 Marks and Spencer stores in France, Morrison's in Gibraltar, and a chain of UK supermarkets in Belgium is on the verge of closure with no deliveries since December.

Our Europe correspondent Gavin Lee reports.
Produced by Sira Thierij, filmed and edited by Maarten Lernout

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Empty shelves: No custard creams for Brits in Belgium

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British supermarkets that have stores in Europe are facing supply problems because of post-Brexit rules on exports to the EU. It's affecting fresh produce at 20 Marks and Spencer stores in France, Morrison's in Gibraltar, and a chain of UK supermarkets in Belgium is on the verge of closure with no deliveries since December.

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The Bank of England has taken another step towards adding negative interest rates to its crisis-fighting toolbox.

It's given High Street banks six months to be operationally ready for them.

Policymakers stressed that this did not mean that sub-zero borrowing costs were "imminent, or indeed in prospect".

But what exactly are negative interest rates? And could a world where savers are penalised and borrowers rewarded end up doing more harm than good?

What are negative interest rates?

The term "interest rates" is often used interchangeably with the Bank of England base rate.

Described as the " single most important interest rate in the UK", the base rate determines how much interest the Bank of England pays to financial institutions that hold money with it, and what it charges them to borrow.

High street banks also use it to determine how much interest they pay to savers, as well as what they charge people who take out a loan or mortgage.

The Bank of England usually lowers interest rates when it wants people to spend more and save less.

It cut them to a fresh low of 0.1% in March 2020 to try to stimulate the economy amid the coronavirus pandemic.

In theory, taking interest rates below zero should have the same effect. But in practice, it's a bit more complicated.

After all, why would anyone pay to stash money in a savings account or lend someone money, when they can keep the cash at home for free?

Why might this happen now?

The Bank of England's number one job is to keep prices across the economy rising steadily every year.

This is known as the Bank's inflation target, which is set at 2% by the government.

Inflation measures how quickly the cost of living is rising.

And, measured by the consumer prices index (CPI), it stood at 0.6% in December, up from 0.3% in November 2020.

While low inflation means prices aren't rising quickly, if it remains low for too long, bosses start factoring that into pay reviews.

This can then dampen consumer confidence and spending.

Central banks have been cutting interest rates to spur inflation for years. But as rates approached zero across the developed world, a handful went a step further.

Sweden, Switzerland, Japan and the 19 nations of the eurozone all took interest rates below zero.

In Switzerland, negative interest rates have also helped to discourage investors from pouring money into the country during times of uncertainty.

How will this affect savers?

British savers have already seen their returns dwindle in recent years.

The average UK instant access account pays just 0.12%, according to the Bank of England, while accounts that require you to lock your money away currently offer an average return of 0.51%.

In countries with sub-zero interest rates, commercial banks have passed them on to big companies.

However, the evidence suggests there is a very high bar to pass the pain on to ordinary savers.

Christina Nyman, chief economist at Swedish lender Handelsbanken, says charging savers to put money in their own accounts is seen as "taboo" in Sweden.

She says: "Competition is fierce, and households are ready to move their money to another bank, so nobody wants to lose business."

Swiss banks UBS and Credit Suisse only impose negative rates on deposits of more than 2 million Swiss francs.

In Germany, where some banks impose charges on deposits of more than €100,000 (£90,000), some people have started stashing their money in vaults.

According to Germany's central bank, physical cash holdings by families and businesses there have almost trebled to €43.4bn since the European Central Bank (ECB) introduced a negative deposit rate in 2014.

But David Oxley at Capital Economics says there hasn't been a wider shift towards cash because most people still prefer the security and convenience of keeping it in the bank.

Putting it in a vault "runs the risk of the money either being lost, stolen, or damaged," he says. "Bank deposits cannot catch fire, but banknotes can."

What about borrowers?

Negative rate mortgages already exist. In 2019, Danish bank Jyske announced that it would effectively pay borrowers 0.5% a year to take out a 10-year loan.

James Pomeroy, an economist at HSBC, says this was only possible because of the nature of the mortgage market.

When someone in Denmark applies for a home loan, Danish banks act as a middleman between potential borrowers and investors.

"In Denmark the banks don't take the hit, investors do," says Mr Pomeroy. "Banks are then charging higher product fees, so have actually made money off of this."

But negative rate mortgages are unlikely to be offered in the UK any time soon.

When UK interest rates were slashed to 0.5% in March 2009, some borrowers thought they could be in line for a payment.

Around 1,500 Cheltenham and Gloucester customers had a mortgage that tracked 1.01 percentage points below the Bank of England base rate.

But any prospect of a windfall was quickly dashed when financial regulators described interest payments as "a one-way obligation on the borrower".

In a letter to UK bank bosses, Sam Woods, chief executive of the Prudential Regulation Authority (PRA), said some lenders would need up to 18 months to make permanent changes needed to deal with negative rates.

While "short-term fixes" could be implemented within six months, upgrading systems not built to deal with a negative Bank of England base rate would take longer, especially for some mortgage customers.

Banks said they would find it easier to explain and implement changes to big corporate clients, because many already had international experience with negative rates.

What are the side effects of negative interest rates?

Negative interest rates hit bank earnings by squeezing the gap between the money they make on loans and what they pay to savers.

"If not passed on to customers, negative rates would hurt bank profitability, especially at a time when they are expected to be hit by crisis-related loan losses," says Danae Kyriakopoulou, chief economist at the Official Monetary and Financial Institutions Forum (OMFIF).

Negative interest rates pose a particular challenge to building societies, which hold around £1 of every £5 in British savings accounts.

While commercial banks can access cheaper borrowing by tapping financial markets, building societies must raise at least half their funding from individual savers.

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The Bank of England has taken another step towards adding negative interest rates to its crisis-fighting toolbox. It's given High Street banks six months to be operationally ready for them. Policymakers stressed that this did not mean that sub-zero borrowing costs were "imminent, or indeed in prospect".

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US job growth sluggish as virus hampers recovery

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US job growth sluggish as virus hampers recovery

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US job growth sluggish as virus hampers recovery

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The US economy added just 49,000 jobs in January, with the hospitality sector still shedding workers.

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Brexit worse than feared, says JD Sports boss

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Brexit worse than feared, says JD Sports boss

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In reality, that meant supermarkets could sell clothes, while firms such as JD Sports had to shut. "Some essential retailers have been making hay out of selling clothes, whilst clothing retailers have been closed. It is bizarre," he said.

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Brexit worse than feared, says JD Sports boss

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In reality, that meant supermarkets could sell clothes, while firms such as JD Sports had to shut. "Some essential retailers have been making hay out of selling clothes, whilst clothing retailers have been closed. It is bizarre," he said.