Investor sentiment improved sharply during November, underpinned by the news of vaccine breakthroughs in the UK and the US. Improving hopes for the economic outlook led to a surge in demand for higher-risk assets and a consequent decline in appetite for perceived safe havens.
- The UK economy expanded by 15.5% in Q3
- The economy is expected to shrink by 11.3% this year
- Redundancies rose to a record high
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Investor sentiment improved sharply during November, underpinned by the news of vaccine breakthroughs in the UK and the US. Improving hopes for the economic outlook led to a surge in demand for higher-risk assets and a consequent decline in appetite for perceived safe havens. The yield on the benchmark UK gilt rose from 0.26% to 0.35% over November as a whole, but climbed as high as 0.44% during the month.
“The OBR warned that a no-deal Brexit would cut economic growth in 2021 by a further 2%”
The UK economy emerged from recession in the third quarter, posting record growth of 15.5%, having contracted by 19.8% and 2.5% respectively in the second and first quarters. Growth during the three months to September was boosted by consumer spending and by the return of students to school and university.
In September itself, the economy grew by 1.1%; however, although this represented a fifth straight month of positive growth, the ONS reported a “loss of momentum” across all sectors between June and September. The economy remained 8.2% smaller than it was before the pandemic at the end of 2019. The rate of unemployment rose from 4.5% to 4.8% during the three months to September, while redundancies increased to a record high of 314,000. The number of people unemployed climbed by 243,000 to 1.62 million during the period.
In the Government’s Spending Review, the Chancellor of the Exchequer warned that UK economic output is not expected to return to pre-pandemic levels until the end of 2022. The UK economy is set to shrink by 11.3% this year – its worst contraction for over 300 years – and unemployment is tipped to climb as high as 7.5% next year.
Government borrowing rose to £214.9 billion during October, and the Office for Budget responsibility (OBR) expects it to reach its highest-ever peacetime level of £394 billion in 2020. Meanwhile, public sector net debt climbed to £2.08 trillion in October, representing 100.8% of GDP – a level last reached in the early 1960s.
In addition to the economic pain caused by Covid-19, the OBR warned that a no-deal Brexit would cut economic growth in 2021 by a further 2%. “Trade-intensive” sectors such as manufacturing, financial services, mining and quarrying – which have held up relatively well under the impact of the coronavirus pandemic – are judged to be particularly vulnerable to the “loss of unfettered access to the EU market”.
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