Although sentiment showed signs of improvement in April after March’s plunging stock markets, investors remained nervous. A survey conducted by GfK found that consumer confidence slumped to its lowest level since 2008 during the second half of March.
- The OBR warned the UK economy could shrink by up to 35% in Q2
- The economy contracted in February
- Demand for fixed income funds plunged
To view the series of market updates through April, click here
Although sentiment showed signs of improvement in April after March’s plunging stock markets, investors remained nervous. A survey conducted by GfK found that consumer confidence slumped to its lowest level since 2008 during the second half of March. Over April as a whole, the yield on the benchmark UK gilt fell from 0.35% to 0.25%.
“The shutdown has caused economic activity in the UK to collapse”
The shutdown has caused economic activity in the UK to collapse, according to IHS Markit, which reported: "Record falls in output across both manufacturing and services are being accompanied by job losses on an unprecedented scale”. Looking ahead, IHS Markit warned that second-quarter GDP growth is likely to contract “to a degree previously thought unimaginable”.
The UK economy grew by only 0.1% quarter on quarter over the three months to February, and fell by 0.1% during the month of February itself. Although the labour market remained strong over the three months to February, March is likely to provide a changing picture as the lockdown began to take effect. The Office for Budget Responsibility (OBR) warned that the UK economy could contract by as much as 35% during the second quarter as a result of the crisis, and the rate of unemployment could rise to 10%. Meanwhile, the Centre for Economics & Business Research (CEBR) estimates that the lockdown will cost the UK economy around £2.4 billion per day.
Following an agreement between the Bank of England (BoE) and the Treasury, the BoE’s “Ways and Means” facility – the Government’s pre-existing overdraft at the Bank – was temporarily extended during April to provide it with additional funds to finance measures to tackle the pandemic.
Credit ratings agency Fitch downgraded the UK’s credit rating from “AA” to “AA-” with a “negative” outlook. Fitch cited a “significant weakening” in UK public finances and short-term damage to the UK economy caused by the coronavirus crisis, alongside “lingering uncertainty” surrounding the post-Brexit relationship between the UK and the EU.
Demand for fixed income funds plummeted during March, according to the Investment Association (IA), and the sector experienced £7.4 billion-worth of net retail outflows. The worst-affected IA sector was £ Strategic Bond with outflows of £1.9 billion. Global Bonds and £ Corporate Bond also suffered outflows in excess of £1 billion each, while UK Gilts and UK High Yield achieve net retail outflows of over £1 billion between them.
A version of this and other market briefings are available to use in our newsletter builder feature. Click here