Post-virus – and after Brexit – everything is going to change. That’s the dominant view of national and international media. But how exactly do they see the future? This regular digest section gives some of their answers and views/Edited by George Hamilton
In this edition (June 16)
‘Deal is there to be done on the Brexit battleground’
- As Bojo met with EU leaders yesterday, the foundations for a free trade agreement are quietly being put in place, says the Daily Telegraph
News expected today that 2 million now out of work
- Jobless total to rise to 4 million over next year, as unemployment doubles and third of firms plan redundancies
UK economy fell by record 20% in April
- Bank of England ‘ready to help’ as lockdown takes toll on GDP
Housing bargains – but not for first-timers – before reality hits home in the autumn.
- Post-lockdown, UK housing market is set to bounce back – at least, until the furlough scheme ends
‘China’s lifeblood’: street hawkers make surprise return to fire up ailing economy
- Once discouraged in favour of modern, smarter cities, vendors have been praised by Beijing in a bid to keep low-skilled people in work after coronavirus
It is not in the UK or the EU’s interest to admit as much but a Brext trade deal is there to be done.
Both sides continue to insist it is up to the other to compromise on their red lines first, which plays well to their domestic audiences, but the groundwork is being laid for a free trade agreement to be finalised by October.
Britain and the EU agreed last week to a programme of intensified negotiations of weekly rounds of talks in July. Yesterday’s meeting of Boris Johnson with the three EU presidents ended with a call for renewed impetus in the talks. Johnson said they needed to put a “tiger in the tank” of the talks, which now needed a “bit of oomph”.
UK threats of walking away from the negotiations in June if there was insufficient progress in trade talks have proved empty. For all the mutual recrimination in public, negotiators are continuing their work in sewing up the agreement.
Forget the rhetoric and propaganda. Neither Britain or the EU want to trade on WTO terms and with tariffs, which would be far less lucrative for both sides than the zero tariff, zero quota trade deal on the table.
Both the UK and the EU took up initial negotiating positions that are so maximalist, it leaves negotiators no option but to compromise.
The last round of negotiations ended, as all the previous had, scuppered on the rocks of the major obstacles of fishing rights and the level playing field.
Michel Barnier has called for a balanced agreement but warned a fishing deal is a precondition for a trade deal.
A former fisheries minister, Mr Barnier is well aware of the emotive power of the industry but will also know that it is a relatively small sliver of the EU’s economy, as well as the UK’s.
Mr Barnier told EU ambassadors that the British were trying to use their leverage over fishing to force EU concessions over “rules of origin”.
If Brussels caved, the UK would be able to import products from around the world, assemble them in the UK, then import them to the EU as a “British good” tariff-free. This could turn the UK into a competitive manufacturing hub for the EU, Mr Barnier warned.
Gradually phasing in new fishing arrangements over a number of years with opportunities calculated on a mix of zonal attachment and other factors could be the solution. This would buy preparation time for the UK and EU industry and allow both negotiators to claim victory.
The EU has called for level playing field guarantees, which are commitments to not undercut the bloc’s standards on labour rights, environment, state aid and tax, to protect its businesses from “unfair” British competition.
If both sides can agree on a review system which would ensure the level playing field stays relevant over time, a deal could be done.
The last minute compromises will come in September or October, which will give the European Parliament time to ratify the trade deal before the end of the year.
The impetus will be provided by the ticking clock, which is not without its dangers. It could mean a very basic agreement.
Both sides also believe the looming deadline works to their advantage, which increases the risk of miscalculation and an accidental no deal exit. Daily Telegraph June 15
Boris Johnson has been warned by cabinet ministers to brace himself for unemployment to hit 4.5 million, the highest number since records began, as a poll finds one in three firms is poised to make staff redundant due to the coronavirus.
A survey by the Chartered Management Institute (CMI) reveals that 34% of managers are set to lay off staff, with 26% expecting to do so this year.
The findings come before figures this week that are expected to show the worst rise in unemployment since the 1920s.
When the most recent statistics were published last month, 1.3 million people were out of work. Ministers believe this is likely to rise to about two million when new figures are released today (Tuesday).
Senior sources say cabinet ministers have said their “central assumption” is unemployment will more than double to 4.5 million over the next year as the state-funded furlough scheme winds down.
Johnson has ordered the cabinet secretary, Sir Mark Sedwill, to gather evidence to support halving the social distancing advice from two metres to one — the key to opening up the hospitality sector, which supports 3.5 million jobs.
Insiders say the prime minister is likely to set out a plan this week to open hospitality businesses in July with a one-metre requirement in place, if the Covid-19 infection rate has come down. The need for the change will seem more pressing this week as firms wanting to lay off staff when the furlough scheme ends start consulting on mass redundancies.
The CMI survey found 6% of companies, one in 17, is poised to sack more than 500 workers, and 18%, nearly one in five, will fire more than 100. Just 22% of managers said their businesses would be back to normal by the end of the year.
The prime minister has tasked Simon Case, the new permanent secretary at Downing Street, to carry out a comprehensive review of the two-metre distancing rule. He will consider its economic impact as well as the scientific evidence.
The “alternative Sage”, a rival to the government’s scientific advisory group for emergencies, urged ministers to exercise “extreme caution” in ditching the two-metre rule, saying: “There are still thousands of new infections daily and a functioning test, trace and isolate system is not in place, so any relaxation . . . risks increasing the spread of the virus.” Sunday Times June 14
The UK economy shrank in April at its fastest pace on record as the lockdown came into full effect, official figures show. GDP fell by 20.4 per cent, the biggest monthly fall since the Office for National Statistics began recording the figures in 1997. It came after a 5.8 per cent contraction in March and a 0.2 per cent drop in February.
The economy is 25 per cent smaller than it was at its peak in February. This eclipses the 6 per cent peak-to-trough decline recorded during the 2008-09 recession.
Andrew Bailey, governor of the Bank of England, said that it had to be ready to do more to help the economy, but he repeated his view that there had been signs of a recovery in recent data.
Economists said that it would take a long time to recover. Although businesses are reopening and many furloughed workers are beginning to return to work, demand is likely to remain subdued for some time. Falling incomes, higher levels of unemployment and weak consumer confidence are expected to weigh on consumption, a key driver of economic growth.
In its latest Monetary Policy Report, the Bank said that the household savings ratio, the proportion of disposable income that is saved as opposed to spent, could hit 17 per cent this year. At present it is about 6 per cent and between 1998 and 2007 the ratio measured an average of 8 per cent.
Spending on meals out, for example, has been impossible, but the Bank said that anxious consumers might be unwilling to spend even as the lockdown was lifted, which could affect the recovery.
The lockdown affected almost all sectors of the economy. Output in the services sector, which accounts for about 80 per cent of GDP, fell by 19 per cent in April. Manufacturing was down by 24.3 per cent and construction was off by 40.1 per cent.
Exports of goods and services fell by a fifth, or £33.1 billion, to £138.4 billion. Imports fell by 18 per cent, or £29.9 billion, to £139.6 billion. The total trade balance fell to a deficit of £1.2 billion. The Times June 13
Estate agents appear to be remarkably upbeat, with reports of a larger than expected rebound in the property market since it opened on May 13 after a seven-week hiatus. The industry reports that inquiries, socially distanced viewings and sales subject to contract are booming, although hard evidence on sold prices will not be published by the Office for National Statistics until the late summer.
But first-time buyers face a race against time for a shrinking pool of mortgages as risk-averse banks pull popular deals only days after launching them.
An analysis by Moneyfacts, the personal finance analytics company, shows how mortgages requiring a 10 per cent deposit have shrunk to become a tiny fraction of the overall total, with safety-first banks concentrating on loans that require 30 or 40 per cent deposits.
Overall, the current frenzy of activity could become a distant memory by the autumn, however, when the government’s coronavirus job retention scheme comes to an end. Some of the 8.9 million furloughed workers are likely to lose their jobs.
Jon Bell, a UK house building analyst at Deutsche Bank, says: “In the short term we are emerging from lockdown and there is a release of pent-up demand . . . Some people have saved money during lockdown, are feeling positive about their finances and have had time to think about their life goals such as owning a home.
“However, housebuilders are quietly concerned that the pent-up demand will fizzle out in the medium term. And then we have the people for whom lockdown has been negative, those who have been fired or furloughed, and the reality is we don’t know how many of those that have been furloughed are on a stepping stone to unemployment.”
As a result of a rise in unemployment, Mr Bell predicts that house prices will fall by between 9 and 23 per cent over the next two years, depending on the size of the rise. A fall in property prices of 9 per cent would take £19,247 off the average house price of £213,855, while a 23 per cent fall would cut it by £49,186.
Less gloomy is a forecast from the Centre for Economic and Business Research that revised its prediction of a 13 per cent fall in house prices this year to 8.7 per cent, followed by growth of 1.4 per cent next year on the basis that the furlough scheme will cushion the blow. It warns that higher unemployment and falling incomes could make banks and building societies more cautious about lending, but that it is likely that the Bank of England will keep interest rates low, keeping most mortgages affordable.
The centre predicts that the worst hit regions will be the west Midlands, Yorkshire and Northern Ireland, in all of which prices could fall by 11 per cent or more this year. London could emerge relatively unscathed, with a 4.6 per cent drop based on the resilience of businesses in the capital.. The Times June 13
Beijing’s sidewalks were often crowded with hawkers selling local street food and a surprisingly diverse selection of daily necessities – socks, tableware, DVDs, textbooks, lingerie and pets. Street vendors came to be viewed as backwards and poor, pushed out by many city authorities in an effort to modernise the country’s urban centres.
But now, according to a recent speech by the Chinese premier, Li Keqiang, street hawkers are the “lifeblood” of the country and a key source of employment in the aftermath of the Covid-19 outbreak. Li’s remarks during a visit to Shandong province last week has created a frenzy around the idea of the ditan, or “street vendor”, economy.
Stocks in companies selling vendor equipment have surged. Major Chinese tech companies began offering cheap loans to new stallowners. On the search engine Baidu, queries for “street vendor tips” jumped in the days after Li’s speech, according to the company. In May, officials said a ranking of “civilised cities” would no longer penalise for the presence of street stalls. At least 27 cities have pledged to support the once undesirable micro-economy.
China’s street vendors were once seen as a symbol of the country’s burgeoning market economy in the 1980s and have been promoted at different times to deal with unemployment – such as in the 1990s during mass layoffs as state-owned companies were privatised. Experts say they play a key role in cities, providing employment for the lower-skilled population as well as a source for cheap food for poorer residents, many of them migrant workers.
In the days since Li’s speech, authorities have started to limit public excitement. A directive from propaganda authorities told news outlets to delete content related to the ditan economy to avoid “hyping” the topic. On the social-media platform Weibo, some hashtags related to the subject appeared to be blocked. Authorities in Beijing have already said that the capital is “not suitable” for street vendors.
That skittishness may be because a loosening of policies towards the vendors would be a rare example of social control being relaxed. For most of the last decade, cities such as Beijing have come under stricter regulation, from barring “uncivilised behaviour” – such as the “Beijing bikini”, when men roll up their shirts in the summer – to efforts to rid the city of the so-called “low-end population” of migrant workers.
“We see Chinese society under more and more control. Everything becomes stricter, and suddenly we see some space,” said Xu Jianhua, an associate professor of sociology at the University of Macau, who has researched street vending in Guangzhou. “I don’t think it’s really about so many people excited about vending. It’s an opportunity to see the relaxing of control.”
Xu sees the current support for street vendors as a temporary measure in response to Covid, not a real reversal of the government’s apprehension about the informal economy and set ideas about cities.
“The overarching idea about what is modern, what is a good city, I don’t think has changed,” he said. “Modern means clean, orderly skyscrapers by big companies, and smarter cities.” Guardian June 12