By Powerscourt on 12/08/2020
The UK has officially fallen into recession for the first time in 11 years as the coronavirus pandemic takes its toll on economic activity with ONS figures this morning confirming that the economy contracted by 20.4% in the second quarter.
The news won’t come as a shock to anyone, particularly after employment data on Tuesday showed three quarters of a million job losses since the start of the crisis, with fears of many more when the UK government furlough scheme ends in October.
But confirmation of the depth of the economic crisis looks likely to weigh on policy plans for the autumn. Concern over the likelihood of an autumn resurgence in the virus has apparently so preoccupied the UK government that it is considering abandoning the autumn Budget, the planned centrepiece of Prime Minister Boris Johnson’s government. Chancellor Rishi Sunak is reported to be considering delaying the Budget until the start of 2021.
Alarm is mounting over levels of the virus across Europe, pointing to a continued headache for authorities in preventing a resurgence while trying to jump-start economic growth. Spain, France and the Netherlands have reported significant rises in the numbers of infections in recent days.
Health authorities in France said daily infections were up by 1,397 in the past 24 hours, reaching 204,172. Prime Minister Jean Castex warned that the public was becoming “careless”.
Spain’s cumulative total of coronavirus infections has now surpassed that of the UK, which long held that record.
New Zealand, which had earlier hailed its success in eliminating the virus, said it would now conduct mass testing in its largest city Auckland after identifying the first new cases in over 100 days. Australia continues to grapple with an outbreak in Victoria.
Meanwhile, Russia announced on Tuesday that it had approved the world’s first coronavirus vaccine, so called Sputnik V. The vaccine has been approved before the usually critical Phase III stage in drug testing, the large scale human trials which are usually a condition of regulatory approval. Although the Russian government has hailed the approval as a breakthrough, the move has provoked criticism from a number of quarters, including the WHO and the head of the US Food and Drug Administration.
Nevertheless, the arrival of the first coronavirus vaccine looks certain to raise pressure on other countries amid an ongoing arms race to develop a vaccine which has seen billions of dollars poured into the field. Other closely-watched drug candidates, including those from AstraZeneca based on technology from Oxford University, are in Phase III trials with pivotal data in some cases expected within weeks.
WHAT ARE COMPANIES SAYING?
Industrial & Travel
The international infrastructure group released its half year results today, reporting an underlying loss from operations of £14 million as a result of the impacts of Covid-19. It included however that the Group order book had increased by over 20 per cent to £17.5 billion from £14.3 billion at the end of 2019, with CEO Leo Quinn explaining that “our balance sheet, order book and expert capability are at record levels. We look forward with confidence to returning to profitable managed growth, and to delivering ongoing value for all our stakeholders.”
Retail & Consumer
The department store group is to cut 2,500 jobs as it restructures management roles at both its stores and distribution centres. The company said in a statement yesterday afternoon that while 124 of its stores have reopened in the UK post-lockdown, “the trading environment is clearly a long way from returning to normal and we have to ensure our store costs are aligned with realistic expectations”. This decision means that the chain has cut around 6,500 jobs so far this year in total – representing a third of its workforce.
The meal kit business expects sales this year to be between 75 per cent and 95 per cent higher than they were in 2018, when it made €1.8 billion in revenue, with the pandemic causing a significant increase in the number of households using the service as individuals avoid trips to supermarkets and restaurants. The company now has 4.81 million active customers, compared to 2.41 million last year, and received 18.1 million orders during the second quarter of this year – three times as many as the 8.93 million meals delivered last year.
The online food order and delivery service released its half year results today, reporting an increase in revenue of 44 per cent to €1 billion year on year and the addition of a record number of new restaurants and active customers. Just Eat Takeaway.com processes 257 million orders in the first six months of 2020, representing a 32 per cent increase compared to the first half of 2019.
The online retailer released a pre-close trading update today, in which it included that sales and profit for the full year are expected to be significantly ahead of market expectations. Revenue growth is now expected to be between 17 per cent and 19 per cent, supported by stronger than anticipated underlying demand. The company explains that it had expected to see order returns normalise once lockdown eased and customers were both able to ship returns and felt comfortable doing so, but it has become evident that this is not the case, with a significant and sustained reduction in returns being seen since April.
Global hostel-focused online booking platform Hostelworld reported in its interim results today that it has seen net bookings fall by 67% compared with the equivalent period last year, driven by Covid-19 travel restrictions. Despite entering the year in a “strong position”, travel restrictions have driven a “sharp reduction” in trading and the company expects the outlook for the industry to remain “challenging and uncertain”. The company did reiterate that the €15.2m raised through an equity placing in June has helped them maintain a strong cash position and will allow them to emerge stronger as restrictions ease. CEO Gary Morrison said that he remains confident the company will “emerge from the COVID-19 crisis stronger than before.”
Financials & Real Estate
Capital & Counties
The property investment and development company released its half year results today, reporting a fall in total property value of 16.3 per cent year on year to £2.3 billion, and a fall in net rental income of 41 per cent year on year to £18 million. It was included however that Covent Garden is well-positioned as lockdown measures are eased and consumers return to central London, with CEO Ian Hawksworth explaining that “the majority of our retail and hospitality customers have reopened with encouraging early indicators”.
The financial services company reported an increase in pre tax profits of 30 per cent to £286.7 million, from £220.2 million in June 2019. It was included in the statement that the lockdown restrictions introduced across the Group’s markets resulted in a significantly lower number of motor insurance claims, as customers stayed at home and drove fewer miles. CEO David Stevens said: “A year ago I described our results as “frankly a bit dull”. With the benefit of hindsight there’s a lot to be said for “dull” if the alternative is a global pandemic”.
The savings and investment manager released its half year results today, reporting a fall in adjusted operating profit of 57 per cent to £309 million, from £714 million for the previous year. CEO John Foley said: “Obviously, this is not the backdrop we would have wished as a newly independent company, but I have been hugely impressed by how my colleagues have responded to the challenge of continuing to serve our customers and clients during the pandemic”. It was included that the company is paying an interim dividend of £155 million, equal to 6.00p per share, in line with its policy of paying one-third of the previous year’s final dividend.
The multinational cybersecurity software company released its half year results today, reporting adjusted billings of $469.1 million, representing a 2.1 per cent increase at actual rates. Adjusted revenue has also increased by 1.5 per cent at actual rates, to $433.1 million . It was included that the trend for working from home provided a significant tailwind to the core Consumer Desktop business, with an increase in demand across the product portfolio. This area of the business has seen a 5.1 per cent increase in customer numbers during the six months.
IN THE NEWS
Boris Johnson warns of “bumpy months” ahead for UK economy – The Daily Telegraph
Lockdown obliterates jobs at the fastest rate since financial crisis – The Times
Sunak weighs delaying autumn Budget on second Covid wave – The Financial Times