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Economic Review – August 2020

Posted on 08 September, 2020

FASTER REBOUND; SLOWER RECOVERY

As recent economic statistics confirm the UK officially entered recession, Bank of England (BoE) forecasts suggest the slump will be less severe than previously thought, but the ensuing recovery is likely to take longer. Data released by the Office for National Statistics (ONS) showed the economy shrank by 20.4% between April and June compared with the first three months of the year. This was the UK’s largest ever quarterly contraction and pushed the economy into its first technical recession – defined as two successive quarters of negative growth – since the 2009 financial crisis.

While the data was undoubtedly grim, it did show the economy’s low point was reached in April when output was over 25% below its pre-pandemic level. It also showed that, as lockdown restrictions eased, the economy bounced back, expanding by 8.7% in June following growth of 1.8% in May……

BOE ‘CONSIDERING’ NEGATIVE RATES

The BoE left base rates unchanged following the latest meeting of its Monetary Policy Committee (MPC) but stated that it was ‘currently considering’ the case for cutting interest rates below zero. At a meeting held on 4 August, the MPC voted unanimously for no policy change, with the Bank Rate maintained at a record low of 0.1%. In addition, the minutes of the meeting stressed the Bank has no intention of raising rates until there is ‘clear evidence’ that a recovery has taken old. The minutes also stated that the MPC continues to ‘monitor the situation closely’ and that it is keeping under review a range of possible policy responses……

GOVERNMENT DEBT TOPS £2TN

The latest public sector finance statistics revealed government debt breached the £2tn mark for the first time amid heavy spending designed to support the economy through the COVID-19 pandemic. Figures released by ONS show that UK public sector net borrowing (the gap between the country’s overall income and expenditure) totalled £ 26.7bn in July. This was the fourth highest monthly borrowing figure since records began in 1993, with all three higher figures being recorded over the past three months…..

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