There will be no spring recovery. Sunak must prepare for a double dip recession | Economy


WWith the development of the coronavirus vaccine, light had emerged at the end of the tunnel after a long and difficult year. After the worst year of growth since the great freeze of 1709, the post-Covid thaw this spring looked like it was poised to kick the UK economy into the roaring 2020s.

Now clear signs are emerging that the UK economy will be hit hard by tighter restrictions needed to contain the surge in Covid-19 infections, fueled by a new, faster-spreading variant first identified at the end of last year in the south of England. Far from a boom in 2021, the economy is doomed to a double-dip recession.

New restrictions aimed at containing the spread of the disease, including home support orders and 3.0 lockout school closings in England, will put renewed pressure on already struggling businesses.

In the face of additional restrictions and the rapid growth of coronavirus infections – which would have led people to voluntarily suspend normal activities in any case, exposing the false choice between lockdowns and allowing the economy to operate freely – the cabinet Oxford Economics board expects the domestic product (GDP) to decline by 4% in the first three months of 2021. This would follow an expected contraction in the last quarter of 2020.

The news comes after the UK recorded a faster-than-expected recovery from the spring lockdown, boosted by the release of pent-up demand and the government’s ‘eat out to help’ program that is bringing customers back to the area. the hotel industry in difficulty. It now looks like a long time ago, a vestige of a false dawn for the economy, as the UK responds to the worst fears of critics who have warned it was irresponsible to return to normalcy.

Compared to the spring 2020 lockdown, the restrictions early this year won’t be such a huge wrecking ball. As the whole of the UK came to a halt in the first wave of infections, GDP collapsed by 20%, an unprecedented sudden stop.

This time around, businesses and households are arguably in a better position. Although they now suffer from the cumulative pressure of coping with nearly a year of the economic consequences of Covid, a manual on how to work through a lockdown – for those who are able to continue trading – now exists. , while the government’s economic support programs are already operational.

However, the two big questions are whether enough money is available for those who fall victim to the economic ravages of the pandemic through no fault of their own, and whether the safety net launched last spring is sufficient to lead the country to through the final chapter of the Covid nightmare. .

In this regard, Chancellor Rishi Sunak has deployed an additional £ 4.6bn for business grants, in addition to £ 280bn in emergency spending for the public sector, businesses, workers and citizens. households throughout the crisis so far.

But there were huge loopholes in the system even before a double dip recession loomed for struggling families and businesses. With a 4% contraction expected in the first three months of the year – the steepest drop in history except last spring, and an economic collapse even larger than the winter of discontent in 1978 -79 – more must be done.

Weaknesses in the support system include the imminent end of the £ 20-per-week increase in universal credit benefits, as unemployment climbs rapidly to 2.6 million, which will threaten poverty for thousands of people.

For businesses, there are calls for extended holidays to business rates and VAT reductions, as well as a commitment to keep the holiday scheme open longer than in April, the date of April. which is scheduled to close, due to the time it will take to recover from a double-dip collapse.

Sunak intends to announce new measures to support the UK economy on March 3, when he holds the government’s next budget. With the start of a double dip, he will have to act much sooner to get Britain through.

Saudis give oil prices a chance

Major Western economies could revert to the 2020 lockdown measures, but the global oil market is climbing to levels not seen since before coronavirus restrictions swept across Europe.

The international benchmark price of oil, Brent, hit the $ 55 a barrel mark for the first time since February in the first week of the year. Bulls in the oil market can hope that prices will rise slightly as each new country begins administering vaccines.

But the real blow in the arm of the global oil markets has less to do with the shots of Covid-19 than the meticulous market choreography of the world’s largest oil-producing countries.

The Organization of the Petroleum Exporting Countries (Opec) has spent most of the year mirroring the artificial collapse in oil demand with an equally unprecedented drop in oil production. But now oil exporters contemplate their next actions as they anticipate the gradual return of the global appetite for energy.

Saudi Arabia, the de facto leader of Opec, surprised the world last week. While many petro-nations have been eager to pump more barrels of oil into the world market again, Saudi Arabia will unilaterally cut production by 1 million barrels per day to keep prices afloat for the first few months of the year.

The move pushed oil prices to 11-month highs. It has also helped to narrow the cracks that have started to appear in the alliance between energy ministers who are in favor of a smooth return to higher oil production and those who are keen to align. the hard-hit coffers of their country with fresh oil revenues.

It may be enough to make the bulls in the oil market forget that, despite all the good news from Pfizer, Moderna and AstraZeneca, there is still a long way to go for Covid vaccinations and a return to economic normality.

UK bookmakers turn jackpot bet for big Vegas casinos

Could Entain – the gaming company that owns Ladbrokes and Coral – follow William Hill into the arms of an American suitor? Las Vegas casino operator Caesars paid nearly £ 3 billion for William Hill last year. Now Entain has rejected a £ 8.1 billion proposal from MGM Resorts, also based in Sin City.

In a statement on Friday, MGM underscored its intentions by revealing that shareholder Barry Diller, the media mogul, had pledged $ 1 billion to increase the percentage of the cash offering.

It doesn’t change much. According to the city’s takeover code, MGM has until February 1 to make a firm offer and it will likely have to do a little better than £ 8bn. But it’s clear that MGM isn’t content with just speculative kicking: it has come to play.

Why do these great Las Vegas players like British bookmakers so much? The answer is that William Hill and Entain have something the casinos on the Strip don’t: an online sportsbook already toughened up by years of competition in a mature market.

The United States Supreme Court did not legalize sports betting until 2018, and many states are still developing regulations. Early signs are that the opportunities are huge, with California alone likely to be a bigger market than the UK.

American casinos don’t have the luxury of time to develop the technology and expertise they need to establish a leadership position. So far they have been willing to lease it out through joint ventures with their cousins ​​Limey. Now, like any good Las Vegas casino owner, they want it all.

MGM will argue that Entain will not get a better deal, pointing to the fact that the two companies already operate a joint venture that would be difficult for a rival bid to take off. Entain will insist that a better deal might be available and that, anyway, it has enough growth potential outside the United States to go it alone.

But MGM surely still has plenty of ammunition. Much now depends on the extent to which the company and funders such as Diller are prepared to raise the stakes.

Aviation is the last sector to suffer a late U-turn from Covid

Finally, the government has announced that all incoming travelers to Britain will need to be tested for Covid-19; a move that has yet to fully close the stable door after the horse locked, but has simply signaled its scheduled closure this week – around 10 months after the first widespread calls for border controls.

For public health reasons, few would disagree with the need for testing – including most of the aviation industry. Trade disputes evidently pale alongside the immediate public health emergency. Among those who have ventured overseas in recent months, there has often been disbelief at the lack of UK border controls, compared to measures taken by other countries – not to mention the island nations that have almost eradicated the virus, rather than spreading new variants.

But for some UK airlines and airports brought to their knees – once truly world leaders, rather than just showing themselves off as such – there will be immense frustration that their own calls for harmonized pre-departure testing, with global standards, seem to have fallen on deaf ears for so long. What has now been introduced as an emergency measure would have been better implemented earlier with care and coordination.

A coordinated international approach may not be the gift of the UK government, even if the latter is keen to do so – but as Heathrow’s statements to receptive tourism organizations make clear, there is very little trust that ministers have paid attention to the experience and concerns of those on the sharp end.

In the context of the pandemic’s u-turns and failures, aviation can take comfort in not being alone. As frustrating, belated, and flawed as the current policy is, it is essentially correct and will provide more certainty than pantomime of round-trip corridors. Unfortunately for aviation, the only conclusion for many airlines will be to bring their fleets to a standstill again.


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