US jobless claims rise by 3.2m to take pandemic total past 33m

A man wearing a mask walks pass the New York Stock Exchange (NYSE) on April 30, 2020
A man wearing a mask walks pass the New York Stock Exchange Credit: JOHANNES EISELE/AFP via Getty Images

Blog wrap

Well that's it from us for this week, we will be back bright and early on Monday.

Thanks for following along. Here's a quick recap from AFP of today's movements:

  • Stock markets rose Thursday as investors looked beyond grim economic news to focus on easing coronavirus lockdown measures, with surprisingly strong Chinese export data adding to the positive vibe.
  • Wall Street was up around 1.5pc in the late New York morning, a rise comparable to the advances seen across Europe at the closing bell.
  • Another 3.2m workers applied for US unemployment claims last week, according to the latest government data, taking the count in the wake of coronavirus shutdowns to 33.5m.

    "While initial claims for unemployment benefits continue to slowly recede from their peaks, they remain at painfully high levels," Oxford Economics said in an analysis that predicted Friday's jobs rep

  • London stocks were also underpinned by a weaker pound after the BoE held rates and kept its stimulus package unchanged, even as it predicted more gloom for the British economy.
  • Asian stock markets closed mixed, while oil prices rallied.
  • China's exports saw a surprise 3.5pc rise in April, official figures showed Thursday.

"Market participants are hoping to see a similar bounce in data for other major economies once lockdown measures are eased," said Fawad Razaqzada at ThinkMarkets.

He cautioned, however, that the economic damage from the virus could already be too deep to allow for a quick rebound.

Stay safe everyone!

Mexican prices drop amid virus lockdown

Prices in Mexico dropped by just over one percent in April compared to March while inter-annual inflation dropped to its lowest rate in more than four years, the national statistics institute said on Thursday.

The biggest price drops have come in the petrol and electricity sectors that are down more than 8.5pc on the previous month, the INEGI institute said.

However, eggs, beer and chilies have all risen in price.

Yearly inflation of 2.15pc was the lowest since December 2015 when that figure dropped to 2.13pc.

Government puts brakes on McLaren loan

Supercar and Formula 1 racing business McLaren has been turned down for a £150m government loan to help it weather the coronavirus crisis, my colleague Alan Tovey writes.

The privately-owned company which employs 4,000 staff at its futuristic base near Woking is understood to have approached the Government for a commercial loan.

McLaren's income has been reduced to virtually zero because the lockdown has prevented it from selling any of its high-performance cars, while the Formula 1 season being put on hold means it is not generating money from racing.

The company is understood to have asked for help from the state because simultaneous talks with other potential lenders or investors are taking too long to solve its current cash crisis.

McLaren's biggest shareholder is Bahrain's Bahrain’s sovereign wealth fund, followed by a gaggle of foreign investors and private equity groups.

In a statement, McLaren said: “Like many other British businesses we have been severely affected by the current pandemic. We are, therefore, in continued dialogue with our banks, investors and government to help navigate short-term business interruptions.”

InBev warns second quarter will be much worse than Q1

AB InBev owns Stella Artois, Corona and Budweiser

AB InBev, the world’s largest brewer, said sales of its beer by volume plunged by a third in April due to the closure of pubs and restaurants around the world.

The owner of Stella Artois, Corona and Budweiser posted a 5.8pc drop in sales to $11bn during the first quarter and a 9.3pc fall in global volumes of its beer as the outbreak began to take hold.

AB InBev warned it expected the second quarter to be “materially worse" following April’s sales plunge.

Coca-Cola HBC, which is one of the world’s largest Coca-Cola bottling companies, also saw a major downturn to its performance in April, as the impact of lockdown measures caused sales to tumble 37pc.

Sales during the first three months of the year were down 0.3pc to €1.4bn, the company said.

FTSE jumps 1.40pc

London's benchmark index has risen 1.4pc today following a late rally towards the end of the session, closing at 5,935.98. The FTSE 250 also jumped 1.66pc to 16,247.94.

Sstocks were also underpinned by a weaker pound after the Bank of England held rates and kept its stimulus package unchanged, even as it predicted more gloom for the British economy.

Neiman Marcus becomes US retail casualty

Upmarket US department store chain Neiman Marcus has become the latest retail casualty of the pandemic after filing for Chapter 11 bankruptcy protection, Chris Johnston writes. He adds:

Its agreement with creditors will wipe out $4bn (£3.2bn) of a $5bn debt pile and provide $675m to keep trading while the Dallas-based chain tries to restructure. 

The lenders will take control of the retailer, mirroring a deal struck by J Crew on Monday to seek protection from its creditors.

Neiman Marcus, which is more than a century old, sells labels such as Dolce & Gabbana, Jimmy Choo and Valentino. It let go of most of its 14,000 employees in March after closing all 43 stores, along with two Bergdorf Goodman outlets in New York and about two dozen outlet shops.

US indices update:

  • DOW 23982.2 +1.34%
  • SPX 2888.08 +1.39%
  • NDX 9071.87 +0.97%
  • RTY 1286.76 +1.88%
  • VIX 31.11 -8.82%

Looser restrictions hope lifts stocks

Markets in Europe have just closed for the week and we will take a look at those final closing figures once things have settled.

Meanwhile across the pond, the major indices are up on continued optimism that some US states are slowly reopening their economies.

David Madden of CMC Markets says:

Equity markets appear set to finish the day firmly in positive territory on the back of hopes that countries will continue to reopen segments of their economies.

Lately there has been a lot of optimism that governments are keen to loosen their lockdown restrictions, so that has fuelled the bullish move in equities.

Dealers have the impression that we are over the worst of it in terms of the lockdowns, so that should the pave the way less stringent restrictions.

The Caixin services report from China was 44.4 – up from 43 in March. The reading is still awful but at least it is a step in the right direction, so therefore it acted as a signal to the bulls.  

Fears Rolls-Royce may need government rescue

Rolls-Royce is poised to reveal the full extent of massive job cuts later this month as the jet engine maker battles to cope with an unprecedented collapse in air traffic.

The firm vowed to set out details of a redundancy programme by the end of May as it warned that trading has been grim and pushed back publication of its half-year results due to the havoc being wreaked by coronavirus. 

It sparked fears that the company may even be forced to seek a lifeline from taxpayers.

Half of Rolls' £15bn annual revenues come from selling and servicing airliner jets. It has been hammered by a 40pc fall in flying hours on its engines in the first four months of the year, with a 90pc plunge in April alone.

Boss Warren East said he expects the “severity of disruption caused by Covid-19 to lead to a smaller commercial aerospace market which may take several years to recover”.

Read Alan Tovey's full article here

Handover

Only a few minutes to go until the European close, after a decent day’s trading. My colleague LaToya Harding is taking over here, and will steer the blog into the evening! Thanks for following along.

Pound gives up its gains

After a shaky day that saw it swing in both directions,sterling has risen slightly off its session lows. It’s hard to get a clear read on such a swing, but it looks like Andrew Bailey et al. at the Bank of England dropped enough hints about further stimulus that traders have been selling off the currency. 

Handily, that has given a boost to the FTSE 100, which is now the top performer among Europe’s main indices.

HS2 contractor Costain stakes future on rights issue

A worker on the HS2 site at Euston in London Credit: ISABEL INFANTES/AFP via Getty Images

HS2 contractor Costain has warned it faces liquidation unless an emergency £100m rights issue goes ahead to shore up its balance sheet.

Simon Foy reports:

The engineering firm said it risks breaching its financial covenants from June if the capital raising fails and its performance falls below its worst case projections.

However, Dubai-based construction group ASGC has committed to invest £25m through the rights issue, which would make it Costain’s biggest shareholder with a stake of around 15pc.

The group said the placing will allow the firm to “demonstrate its increased financial capacity to clients”.

Alex Vaughan, Costain’s chief executive, said: “We are pleased to have secured significant support from investors for this fundraising. With a stronger balance sheet and the positive long-term outlook for UK infrastructure, Costain will be better placed to benefit from the significant market opportunity in front of us.”

Shareholders will be asked to approve the capital raising at a general meeting on May 27.

It came as Costain slumped to a £6.6m loss for 2019 compared to £40.2m profit for the previous year. The company blamed the performance on contract cancellations and delays to start dates. 

AA: Traffic returning to pre-lockdown levels

Traffic levels are heading back to pre-lockdown levels according to breakdown assistance company the AA, with callouts just 6pc below the normal level. 

My colleague Alan Tovey reports:

The business, known for its bright yellow vans, saw callouts fall 60pc after the lockdown began, though this has climbed recently and was 25pc below expectations a fortnight ago.

Simon Breakwell, chief executive, said that about half of the callouts have been from motorists who are starting their cars for the first time and finding their batteries are flat.

The AA furloughed some staff and non-breakdown patrol staff have been home because of the lockdown. 

NHS staff have also been offered free breakdown assistance, with about 2,500 call outs as a result, and the company has also helped maintain ambulances in London. 

Announcing results, the AA’s revenue rose 2pc to £995m in the year ending January, with pre-tax profit doubling to £107m. 

A fall in the number of people paying to be members was also reversed, edging up 0.2pc to 3,312,000. Average income per member climbed £3 to £165 per year and the retention rate was steady at 80pc.

The AA’s debt pile – a legacy from its private equity ownership – was reduced by £100m to £2.6bn and the company said it has a “continued focus on proactive debt management”. 

US jobless claims: what the experts says

With another 3m Americans losing their jobs last week (see 1:44pm update), it’s clear that the havoc being wreaked upon the US labor market by coronavirus is far from over.

ING’s James Knightley neatly summed up the mood:

The only positive thing to say is that it is the fifth straight weekly slowing, but even so, the rate of decline is weaker than hoped – the consensus was 3 million.

Looking towards tomorrow’s non-farm payrolls data, he noted it will only cover the period up to April 12th, when jobs losses were a little lower, at 22m. He added:

There is some evidence that jammed phone lines and crashed websites mean the actual number of jobs lost could be higher, but then again some people may have filed more than one claim in the confusion while a lucky few may have got work elsewhere.

We look for payrolls to fall 21 million tomorrow, wiping out all the job gains since the end of the Global Financial Crisis.

Oxford Economics’ Nancy Vanden Houten said job losses remain at “painfully high levels” despite the slowdown in new claim numbers. She added:

The downward trend in claims brought the four-week moving average to 4.174 million, down from 5.035 million in the prior week and the peak of 5.79 million.

IFS calls for cuts to furlough scheme

The furlough scheme introduced by Chancellor Rishi Sunak has proved immensely popular among businesses Credit: WILL OLIVER/EPA-EFE/Shutterstock

The furlough scheme must be pared back to encourage employees back to work and protect the public finances, a leading think tank has warned.

My colleague Lizzy Burden reports:

Cutting the percentage of workers' wages paid by the state under the programme from 80pc to either 70pc or 60pc would make it more sustainable, said Paul Johnson, director of the Institute for Fiscal Studies (IFS).

The current rate – which could cost Britain £42bn over three months according to the Office for Budget Responsibility – “may be more generous than is necessary in the slightly longer term”, Mr Johnson said.

It is even feared that the furlough scheme could itself put the economic recovery at risk if allowed to drag on too long, because workers at failing firms will not have to seek new jobs elsewhere.

Nasdaq is now up on the year

Remarkably, today’s rise on the Nasdaq puts the tech-heavy US index in positive territory for the year. That’s right – despite everything, it’s higher now than it was on January 1st.

Bloomberg reports:

Combined with strong balance sheets, big tech’s online focus has kept the companies intact while much of the economy reels, repudiating skeptics who said their high valuations would leave them vulnerable when the bull market ended.

The rally gained momentum late last month after solid earnings from Google parent Alphabet, Facebook, Microsoft and Tesla – which make up more than a fifth of the index. The advance was delayed last week when Amazon and Apple spooked investors with cautious comments about the coronavirus pandemic’s long-term impact.

 You can look back at its movements using our Markets Hub tools:

Wall Street climbs at the open 

Stock markets continue to largely ignore the slew of very grim economic data continuing to come out. 

Despite a further 3.2m Americans applying for unemployment benefit, Wall Street has opened in the green and the tech-dominated Nasdaq is now trading flat for 2020. 

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3.17m more Americans file for unemployment benefits

Just in: 3.17m Americans filed for unemployment benefits last week, taking the total  claims over 7 weeks clear of 33m. 

The latest figures show a continue downwards trend, but the numbers are still huge. 

The Department of Labor said 22.6m people filed for continuing claims, meaning they are continuing to receive payouts. 

Pret announces more store openings

Unimaginative lunchers rejoice! Pret A Manger plans to reopen more of its stores for delivery and takeaway.

Press Association has the details:

With 30 stores already reopened, a further 71 shops will follow from Monday, including cafes in Birmingham, Bristol, Edinburgh, Glasgow, Leeds and Manchester.

It will bring the total number of reopened shops to over 100.

In a blog post addressed to customers, Pret chief executive Pano Christou said: “It’s been fantastic to see so many of you respecting the changes we've made, and we're extremely grateful for your ongoing support.”

Each shop will be fitted with Perspex screens at the tills, while restrictions will be in place on the number of customers allowed in the stores.

Mr Christou said customers will be provided with hand sanitiser, while members of staff will be offered face coverings.

European rally gathers pace

 After a plodding start this morning, the rally across European stock markets have found its legs somewhat, with the FTSE chugging along nicely along Germany’s DAX and France’s CAC.

Credit: Bloomberg TV

London’s blue-chips have been pushed around gently by movements in the pound, which is struggling to settle following this morning’s Bank of England announcement:

Superdry boss says online orders have made up for store closures

Julian Dunkerton, the boss and co-founder of Superdry, struck an upbeat tone as online orders made up for some of the sales it lost in stores.

My colleague Laura Onita reports:

The retailer, which was initially forced to shut all of its 241 branches, said people have been buying clothes on its website, with revenues nearly doubling in the last four weeks to £3.7m a week. This has offset a third of the lost store sales. 

Mr Dunkerton said: “I can turn a negative into a positive very quickly. [The outbreak] has galvanised the executive team to make sure that the future is lean and efficient and we’re doing the right thing. We’ve been able to add a new rigour, which is great. We are going to build the brand’s health.” 

Before coronavirus, the chief executive embarked on a turnaround plan for Superdry after falling out with its previous management. 

He said he planned to reopen all the stores as the lockdown eases, while the business focuses more on marketing and social media to convince new shoppers to buy its wares. 

It has previously vowed to discount less and create new products, some of which have a more upmarket feel. 

The majority of its stores on the Continent have or are about to reopen. 

“[Trading] seems to be getting better every day. People want new products and full-price clothes,” he added.

InterContinental expects sales to drop 80pc

InterContinental said it has seen signs of recovery Credit: Newscast/UIG via Getty Images

InterContinental Hotels is braced for an 80pc slump in sales in April as the pandemic sends occupancy levels to record lows.

My colleague Hannah Uttley reports:

The owner of the Holiday Inn and Crowne Plaza chains said revenue per available room fell by a quarter in the first three months of the year, including a 55pc decline in March.

Hotels have been hammered by the coronavirus as social distancing measures and restrictions on international and business travel sees a plunge in bookings and increase in cancellations.

Sales in China, the centre of the outbreak, were down by almost two-thirds in the quarter, with Europe, the Middle East, Asia and Africa seeing a 26pc fall. Revenues were down 19pc in the US.

Keith Barr, chief executive, said: “Covid-19 represents the most significant challenge both IHG and our industry have ever faced.

“We have been working closely with our owners to help keep hotels open, including advising on adjusting operations, providing fee relief and payment flexibility, and collaborating to secure broader government support for the industry.”

InterContinental said it has seen signs of recovery with around 90pc of its hotels in the US, its biggest market, open as of the end of April. It added that sales declines across the estate have been lower than the rest of the industry as the sites are largely located in areas which are less reliant on international travel and large group meetings and events.

The group said it is continuing to open new hotels including the Regent Shanghai Pudong in China later this month.

How Covid-19 could hit the UK economy – in charts!

If you’d like to see some of the historic GDP charts I put together for today’s blog in a single, digestable package – you can! Fill yer boots:

And here’s a couple more via the BoE to scratch that data itch:

Money round-up

Puma warns results will worsen in second quarter

Puma said it has seen green shoots of recovery in Asia Credit: CHRISTOF STACHE/AFP via Getty Images

Sportswear brand Puma warned its second quarter results will worsen after it reported a 1.3pc sales decline to €1.3bn during the first three months of the year, better than analysts had feared.

My colleague Hannah Uttley reports:

Operating profits halved to €71.2m during the period as stores around the world remain closed under lockdown.

Analysts had forecast sales to total €1.26bn for the quarter and earnings of €71.2m.

Online sales jumped by around 40pc in the quarter, but Puma said this was not enough to recover sales lost from closed shops.

It comes after rival Adidas suffered a 19pc drop in sales during the first quarter and also warned its performance would worsen over the following three months.

Puma said it has seen green shoots of recovery in Asia, especially in China and South Korea, while some stores are reopening in Europe, but distribution is still almost fully shut in the Americas.

The firm said it expected all markets to recover by the end of the year and for growth to return in 2021, adding that the crisis has encouraged consumers to do more exercise and dress more casually.

Barclays called to account over loan delays

Barclays has been told to explain itself after potential borrowers struggled to access emergency cash under the new Bounce Back Loans scheme.

My colleague Lucy Burton reports:

Small businesses have flooded major banks with applications for the lifeline loans since it launched on Monday, with Chancellor Rishi Sunak tweeting that applying for the money can be done “in the time it takes to have lunch”.

However, some Barclays customers complained that they were unable to access the rescue cash due to error messages on the application page. One frustrated customer tweeted that it was “more like the ‘bounce your head against the wall’ loan”.

In a letter to Barclays UK chief Matt Hammerstein, Treasury select committee chair Mel Stride has told the bank “to explain what is happening, and what it is doing to fix any issues that have arisen”.

His letter comes days after he asked the Barclays boss during a committee hearing if the system was down following complaints. Barclays had 200 applications in the first minute of the scheme's launch and by Tuesday had approved 32,000 loans. 

British Airways aims for July comeback

British Airways is owned by IAG Credit: ADRIAN DENNIS/AFP via Getty Images

The owner of British Airways is planning a “meaningful return” to the skies in July after warning further action will be needed to weather the coronavirus pandemic. 

My colleague Simon Foy reports:

IAG also said chief executive Willie Walsh will stay on for another four months to steer the company through the crisis. 

He delayed his retirement in March and will be succeeded by Luis Gallego in late September.

The FTSE 100 firm said further restructuring would be needed as passenger demand would not return to 2019 levels for another three years at the earliest. 

Last week, IAG said BA would cut 12,000 jobs, including around a quarter of its pilots. 

Rivals Virgin Atlantic and Ryanair are also axing up to 3,000 employees each as demand plummets.

Bailey: We will make ‘appropriate’ response

Here’s probably the crucial line for BoE governor Andrew Bailey’s call with journalists earlier – an indication that further relief efforts remain firmly on the table:

It’s about what is the appropriate response and what information, news, we think we’re going to get in the quite near future. It would be slightly overstating it to say that there’s a bunch of us will never do any more and a couple of people who will.

UK set for worst quarterly contraction on record

Even more striking is the gap between the Bank of England’s estimate of a quarterly contraction of 25pc between April and the end of June, and historic figures. It’s set to be the worst ever, by quite some distance:

Here’s a clearer comparison of the worst quarters on record:

2020 drop would be among the worst in British (or English) history

Here’s how the estimated fall would compare to the worst contraction in English and British history – note that the BoE’s historical data only cover England from 1270 until 1700, so we’ll have to make do with a rough comparison. So it’s bad, but not 1629 bad.

BoE forecast indicates sharpest contraction since start of 18th century

The Bank of England’s forecast for a 14pc contraction in the British economy this year is truly historic – Threadneedle Street’s own reconstructed growth data suggests that mean the sharpest contraction since 1706:

 Swedish bank SEB’s Karl Steiner said:

Details on the view of consumption and investments now and going forward are grim, adding also to the very uncertain circumstances under which trade negotiations have to be conducted to finalise the Brexit process.

FTSE makes lukewarm gains

It’s a pretty mild showing across European stock markets today – the pan-continental Stoxx 600 has risen about 0.6pc, while the FTSE 100 is lagging slightly amid a rise in the pound (which puts pressure on internationally-focused blue chips).

From overnight: Chinese services sector still contracting

It feels like a long time since China was the centre of attention for people tracking the  economic impact of Covid-19. But the latest reading of the Caixin purchasing managers’ index, released last night, shows the country’s services sector is still in a slowdown.

Although it looks like a ‘V-shaped recovery’, remember that PMIs only indicate growth with a score above 50. In actuality, all that is being shown here is that the pace of the slowdown is easing.

Reuters has more details:

The third straight month of contraction for China’s services sector, an important generator of jobs and which accounts for about 60pc of the economy, suggests a still turbulent period ahead after the collapse in economic activity in the first quarter, when gross domestic product shrank 6.8pc.

It also raised worries about the outlook even though the pandemic has been largely brought under control domestically, as a sharp global downturn dampens demand for Chinese goods and services.

“The second shockwave for China’s economy brought about by shrinking overseas demand should not be underestimated in the second quarter,” said Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group.

...while Virgin Media and O2 tie the knot

The owners of Virgin Media and O2 have agreed to merge the two companies in a blockbuster £31bn deal that creates a “quad play” provider bigger than BT with some 46m television, broadband and mobile customers.

My colleague Chris Johnston reports:

Telefonica’s O2 is valued at £12.7bn, while Liberty Global’s Virgin Media is valued at about £18.7bn.

However, the deal will be structured as a 50:50 merger with each company naming four directors each and the chairman will rotate every two years. Potential savings amount to more than £6bn.

Liberty will make the initial chairman appointment and the identity of chief executive for the combined business has not yet been announced. 

Telefonica chief executive Jose Maria Alvarez-Pallete said the deal would be a game-changer in the UK.

CMC Markets’ Michael Hewson points out that there may be something of a link between that announcement and BT’s scramble for investment cash:

Management have cited the Covid-19 crisis as the main reason for the suspension, as the company strives to create extra head room as usage of the network increases due to the lockdown, and BT looks to build resilience, as well as spending huge amounts of money in accelerating the build of its FTTP network, with a target of 20m homes by the mid to late 2020’s, and a target of over 2m in 2020/2021. The company is also spending a great deal of money investing in 5G technology.

While that is no doubt a valid reason, the redirection of this cash may well also be as a response to this morning’s announcement of a deal between Telefonica and Liberty Global, as they look to park their tanks on BT’s lawn. BT’s net debt is already quite high, rising to £17.9bn this year already so it was inevitable that something had to give in terms of payouts relative to capex.

BT shares plunge after it slashes dividend

BT chief executive Philip Jansen Credit: Hollie Adams/Bloomberg

Let’s check out some corporate news! Shares in BT plunged this morning after the group suspended dividend payments until March 2021 to fund a multi-billion pound spending spree.

My colleague Matthew Field reports:

The network operator, which owns Openreach and EE, laid out a new fibre broadband target to hit 20 million homes by the late 2020s, an increase from 15 million homes.

The investment is part of a transformation programme to upgrade the network and roll out 5G in the UK, costing around £12bn over the next decade.

BT chief executive Philip Jansen said: "These decisions, particularly on the dividend, network investment and transformation are key to underpinning BT’s investment case; driving network strength, competitive strength and financial strength, providing more clarity to the market, and driving long-term value for shareholders.”

Mr Jansen said he expected the dividend to return at around 7.7p per share.

Shares dropped as much as 11.5pc, but have pulled back up a fair bit:

Financial Stability report: Key points

Alongside the monetary decision and report, there’s plenty to chew on in the BoE’s latest Financial Stability Report, which details how groups from household to banks have been weathering the coronavirus crisis.

Here are more details from Tim:

The Bank’s Financial Stability Report warned that its main scenario left companies with a £140bn cash deficit thanks to the lockdown. 

“Some businesses will need to access additional sources of finance in order to maintain their productive capacity through the shock,” it added.

Banks come through the crisis with almost half of their financial buffers eaten away by the recession, while the “sharp fall in economic activity will put pressure on some households’ finance”.

Officials have subjected banks to ‘stress tests’ for several years to ensure they are strong enough to survive a serious recession.

The pace of this economic crash is steeper than those hypothetical stresses considered in previous years, but banks are expected to remain strong enough to keep on lending in part because of the expected quick recovery but also because the job retention scheme means millions of workers have been furloughed, retaining most of their incomes instead of losing their jobs.

The Bank added that it was “vigilant to risks that could emerge” when measures to ease the pressure such as mortgage payment holidays came to an end.

Threadneedle Street has taken this opportunity to sing the praises of the stress tests it runs – pointing out that banks entered the current crisis with “significantly stronger capital positions than they had ahead of the global financial crisis”.

The BoE said the aggregate CET1 ratio across lenders (a measurement of their emergency cash buffers) was three times higher at the end of last year than it was in 2007.

The report says:

The 2019 stress test showed that banks maintained sufficient capital to continue to supply credit to UK businesses and households through synchronised recessions both in the UK and globally, which would have been more severe overall than the GFC.

In addition, the BoE said households entered the crisis in a “stronger position” than during the crash in 2007. The report notes:

The share of households with a mortgage debt-servicing ratio (DSR) at or above 40pc — a level above which households are more likely to experience payment difficulties — has remained at around 1pc over the past two years, compared to 2.7pc in 2007

It warns however that the present economic situation “may exert downward pressure on some households’ incomes if employees lose their jobs”, adding “the ability of some households to service their debts will be challenged by a period of higher unemployment and weaker income growth”.

Credit: British Household Panel Survey/Understanding Society (BHPS/US), NMG Consulting survey, Bank of England, Ipsos MORI and Bank calculations

Developing report: Bank of England predicts record crash

My colleague Tim Wallace has a standalone report up on this morning’s bleak predictions from the Bank of England. He writes:

The economy will sink by as much 30pc in the three months to June, the Bank of England has warned, before recovering “relatively rapidly” in summer and into the autumn as social distancing measures are eased.

It means GDP will fall by 14pc this year compared to last year before bouncing back by 15pc in 2021 as the economy returns to something like normal.

Officials expect unemployment to jump to 9pc, gradually falling back to its current level in 2022.

BoE decision: What the experts say

The consensus was against any fireworks from today’s BoE decision – given the rapid action taken in March, it makes sense that MPC members would sit back and get a sense of what impact their decision are having.

Samuel Tombs, from Pantheon Macroeconomics, said an expansion of quantitative easing is likely to take place when the committee meets in June, adding:

Most MPC members saw "value in waiting" for more information to emerge over the coming weeks regarding how quickly the lockdown will be relaxed and the size of the hit to the economy in March and April. There was no collective pre-commitment to more QE in the minutes, but "all members agreed that the Committee would act rapidly should market conditions similar to those seen in mid-March re-emerge”. That sounds a lot like a new policy of implicit targeting the yield curve has been adopted, at least for the duration of the Covid-19 crisis.

 Capital Economics’ Paul Dales concurred that “it feels like only a matter of time before the MPC expands QE”. He said:

We warned in our preview to this meeting that the MPC may increase QE by £100bn at its June meeting, which is now looking like a good call. If anything, over the coming months and years, the Bank may end up going much further than that.

ING’s James Smith said the decision shows the BoE taking stock of its actions. He wrote:

Having thrown the kitchen sink at the economic recovery - and been unafraid of acting in between meetings - it’s not too surprising that the Bank of England has opted against making any major new changes this week. After all, financial markets are calmer - money market conditions have improved to a certain degree...

...Still, the overarching theme is that monetary policy is probably doing about all it can to support the recovery for the time being. That means the government’s response will come under increasing focus again - and in particular how the likes of the Job Retention Scheme can be tweaked to help facilitate a return to normality that is likely to be exceptionally gradual.

Haskel and Saunders pushed for higher purchase target

The Monetary Policy Committee’s minutes show it was policymakers Jonathan Haskel and Michael Saunders who backed expanding the BoE’s asset-purchasing programme by a further £100bn.

The minutes note that, at the current rate of purchases, the Bank of England will hit the maintained £546bn target by “the beginning of July”. The MPC noted it “could expand asset purchases further, if needed to meet its remit” – though officials chose not to do so today.

Although committee members voted against changes today, the 7–2 decision shows there is a bias towards further easing – knowledge currency traders will take into account when the next meeting approaches.

No call after all

Scratch my earlier remarks – contrary to expectations, the BoE has said it will not be holding a live press conference, despite the European Central Bank pulling one off without major hitches last week.

Instead, there will be a conference call with journalists starting around 8:30am, with a statement on the briefing set for release at 10am. So we might be waiting until then to find out more details on what Governor Andrew Bailey is thinking.

In charts: The key predictions

The is probably the easiest chart group for a broad overview on the Bank’s near-term predictions: 

Credit: Bank of England/ONS

BoE: Activity should recover by second half of 2021

 A light at the end of the tunnel? The BoE’s Monetary Policy Report say economic activity will pick up “materially” in the latter part of 2020, assuming social distancing measures are relaxed.

But they warned activity “does not reach its pre‑Covid level until the second half of 2021” under its illustrative scenario – meaning it will take well over a year for the economy to have bounced back.

The report added that widespread unemployment could slow the rate at which the labour market recovers, as large-scale hiring creates inefficiencies:

In the scenario, the sharp fall in demand leads to spare capacity. In large part, that reflects slack in the labour market. Unemployment is elevated over the first part of the scenario. There is assumed to be some temporary reduction in the efficiency with which people can find jobs, although the long‑term equilibrium unemployment rate is assumed not to rise.

From the horse’s mouth

Ahead of the BoE’s press conference (set for 9am), the Old Lady of Threadneedle Street has released a YouTube video, with MPC members led by Andrew Bailey explaining the changes (or lack thereof) in today’s announcement:

Dire warnings

In its Monetary Policy Summary and Minuters from today’s meeting, the MPC said “Economic data have continued to be consistent with a sudden and very marked drop in global activity.”.

They said the “timeliest” indicator of UK demand have begun to stabilised in recent weeks after sharp falls in late March and early April, adding:

Financial markets have recovered somewhat over recent weeks and risky asset prices have picked up from their lows in mid-March.  This in part reflects the actions taken by authorities in the United Kingdom and elsewhere.  Global financial conditions have, nevertheless, remained tighter than prior to the outbreak of Covid-19.  

Nonetheless, the BoE warned the UK economy could shrink by 14pc this year, with a 25pc slump in the second quarter (that’s April, May and June). The MPC said:

The illustrative scenario incorporates a very sharp fall in UK GDP in 2020 H1 and a substantial increase in unemployment in addition to those workers who are furloughed currently. Given the assumed path for the relaxation of social distancing measures, the fall in GDP should be temporary and activity should pick up relatively rapidly. Nonetheless, because a degree of precautionary behaviour by households and businesses is assumed to persist, the economy takes some time to recover towards its previous path. 

They warned the unemployment rate could hit 9pc in the second quarter.

Credit: Bank of England

Keeping the powder dry

The Bank of England has kept its remaining powder dry at today’s meeting: interest rates will stay unchanged, and the central bank’s asset-purchase programme will remain capped at £645bn – despite protestations from two members of the Monetary Policy Committee, who backed upping the target for purchases by a further £100bn.

The MPC said:

At this meeting, the Committee judges that the existing stance of monetary policy is appropriate.  The MPC will continue to monitor the situation closely and, consistent with its remit, stands ready to take further action as necessary to support the economy and ensure a sustained return of inflation to the 2pc target.  

Agenda: Andrew Bailey to hold press conference 

Good morning. Bank of England Governor Andrew Bailey is set to hold a press conference this morning after the Bank kept interest rates unchanged. 

The Bank's "scenario" analysis estimated a 30pc fall in GDP in the second quarter, with a 14pc fall over 2020.

Markets are set to open flat as investors weigh up moves to ease lockdown restrictions amid  mixed economic and earnings data.

5 things to start your day

1) Business leaders have called for a detailed timetable setting out how the economy will reopen as they fight to save millions of jobs. Bosses are desperate for Boris Johnson to lay out a clear route away from lockdown when he gives a landmark speech on Sunday, so they can plan ahead following weeks of conflicting messages and off-record briefings.

2) Four ways Rishi Sunak can defuse the furlough jobs timebomb: He does not have long to decide. The 45-day consultation period on large redundancies means he has just days before struggling firms kick off the process of removing workers before the end of June. 

3) Call to taper furlough scheme to avoid job cuts: The legal liabilities of reopening and costs of new safety measures will put additional pressure on businesses when the lockdown ends

4) Struggling Debenhams will shut a further five of its branches in shopping centres owned by Hammerson, putting 1,400 jobs at risk. The news came as a judge ruled that its administrators must still cover holiday pay for staff while they are on furlough. 

5) Ocado investors revolt over £88m bonuses for bosses: Almost a third of its shareholders voted against the remuneration report, including BlackRock and Royal London Asset Management, on Wednesday. 

What happened overnight 

Asian shares were mixed on Thursday after a decline on Wall Street after more depressing data rolled in on the devastation sweeping the global economy.

Comments by President Donald Trump on trade with China and casting blame on Beijing for the coronavirus pandemic have further dampened sentiment.

Japan's benchmark Nikkei 225 gained 0.2pc in morning trading to 19,659.20, reopening after Golden Week holidays, and South Korea's Kospi added 0.1pc to 1,930.90. Australia's S&P/ASX 200 lost 0.2pc to 5,372.30, while Hong Kong's Hang Seng fell nearly 0.7pc to 23,973.95, while the Shanghai Composite was flat at 2,878.43.

Coming up today

Interim results: Cushman & Wakefield

Full-year: AA, BT, Equiniti, Morgan Sindall

Trading statement: Barratt Developments, IMI, InterContinental Hotels, Melrose Industries, National Express, Provident Financial, Rathbone Brothers, Reach, RSA, S4 Capital, Superdry, TheWorks.co.uk, Trainline

Economics: MPC decision, Halifax house price index (UK); Caixin services PMI (China); industrial production (Germany); jobless claims (US)