Government debt breached £2 trillion for the first time in July, driven higher by spending to shore up the economy. Total debt rose to £2.004 trillion by the end of July – £227.6 billion higher than at the same point in 2019 – and it is widely expected to continue its rise.
- Activity picked up in August, but job losses accelerated
- Up to 20% of furloughed workers could lose their jobs when the scheme ends
- CPI picked up to 1%
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Government debt breached £2 trillion for the first time in July, driven higher by spending to shore up the economy. Total debt rose to £2.004 trillion by the end of July – £227.6 billion higher than at the same point in 2019 – and it is widely expected to continue its rise. According to the Office for National Statistics (ONS), this is the first time that debt has risen above 100% of GDP since the financial year ending in March 1961. The yield on the ten-year gilt rose from 0.11% to 0.31% during August.
“Governor Andrew Bailey maintained that the BoE still has enough “firepower” in its arsenal”
Credit ratings agency Standard & Poor’s (S&P) believes that the creditworthiness of UK banks will be tested as fiscal support is withdrawn. S&P anticipates an “awful earnings environment” for the sector and expects the withdrawal of Government support programmes and payment holidays to create a “credit inflexion point”. Meanwhile, the Bank of England (BoE) warned that UK businesses are facing a cash flow deficit of £200 billion; the central bank believes it is in the “collective interest” of the banking sector and the wider economy for banks to continue lending to businesses and households. However, the risk of defaults appears to be rising: the BoE highlighted emerging signs of stress and credit rating agencies have downgraded around 100 UK companies since March, although the pace of downgrades is slowing.
UK services and manufacturing companies reported a strong increase in activity during August, but IHS Markit reported that the rate of job losses accelerated amid doubts over the speed and duration of the recovery. The news compounded fears of further job losses as the Government’s job retention scheme is wound down. IHS Markit warned of “widespread concerns that the honeymoon period for growth may begin to fade through the autumn months”. The Office for Budget Responsibility (OBR) has forecast that up to 20% of furloughed workers will lose their jobs once the scheme ends.
The annualised rate of consumer price inflation rose from 0.6% in June to 1% in July as the UK economy started to reopen. Elsewhere, in a speech at this year’s virtual Jackson Hole symposium, BoE Governor Andrew Bailey maintained that the central bank still has enough “firepower” in its arsenal, despite cutting its key interest rate to an all-time low of 0.1% and expanding its quantitative easing measures.
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