Data is out showing that the percentage of people claiming unemployment benefits in the UK for April spiked considerably above that seen during the Great Financial Crisis.
A few highlights include:
- Claimant count increased by 856,500 – the biggest ever month-on-month addition.
- Highest claimant total since 1996.
- Unemployment expected at over 10% in next couple of months.
- Record quarterly fall (Feb-April) in available job vacancies.
- Numbers suppressed by 80% pay furlough scheme.
This comes on the back of the Bank of England forecasting the worst slump in 300 years for the UK economy with a potential fall in Q2 GDP of 25%. This did not prevent the FTSE100 enjoying a 4% rally yesterday though and this propensity for markets to see through any negative news and assume everything will be fine following a short-term ‘blip’ is quite a leap of faith.
The UK government is having to spend like crazy and even that is not enough to prevent data setting historically bad records. We’ve already been warned that all the stimulus and support measures will need paying for and this is likely to drive up living expenses in the UK with the potential for increased National Insurance charges, VAT, freezing of benefits, jumps in local government taxes combined with service cuts etc.
Once of the biggest concerns I have though is that re-employment and new job creation will falter later in 2020 and this will make a mess of expectations for a strong consumer supporting the recovery in GDP. There are a lot of businesses going bust at the moment and stories of redundancies are rife. Just in my circle of friends I know several people who have permanently lost their jobs through this and on a national scale the extent of this must be huge and I think underappreciated.
The governments furlough scheme and the self-employed support is helping but even where they keep people going now, they are not long-term solutions and they also make people think differently about the future.
It might not be the best example, given the lock down, but new car sales in the UK declined 97.3% in April with 4,321 units registered. That is a momentous drop given the uncertainty about future job security and vacancies levels, it’s not difficult to image that when showrooms get open again, there could be a reluctance to make such big ticket purchases and/or that such purchases will be of more affordable models.
And each instance of this kind of demand change starts a chain reaction. Less cars sold means less cars that need manufacturing, which means less shifts on production lines and less hours for workers. It also means less demand for car parts which then cascades down the supply-chain to the smallest engineering companies who might manufacturer just a handful of parts and who could be the most impacted.
This kind of logic can be applied to many other industries and one that has been prominent in the news has been Airlines who have grounded fleets because of less travel and are now cancelling new aircraft orders and will require less maintenance in future if they start to use smaller fleets. This has already lead to Airlines making pilots redundant and engine manufacturers cutting production, as examples of how less travel starts to move through an industry.
And all of this ignores the Brexit issues around trade that will follow the UK’s exit from the EU and that is still be negotiated and a story that has largely been overshadowed by the pandemic.
I don’t want to be overly negative and what the future looks like for us here in the UK but I am struggling to see how we come out of this with any strength given that there are so many factors at play which could lead to material impacts on the economy that have the potential to last for years and not just one-quarter and done.
Thanks for your time, sorry to be a but gloomy today.
