Cautious optimism over Covid as inflation hits three-year high

Optimism amid decline in Covid infections

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The number of daily new Covid infections has fallen in the past week, although the government and scientists remain cautious about declaring a turning point in the pandemic. Driven by the Delta variant, cases remain significantly higher than in the spring. Scientists say it will take several weeks to quantify the impact of the government’s removal of most restrictions on 19 July. The figures for 28 July show 27,734 people tested positive for Covid-19 across the UK, down from a high of 60,713 on 15 July. However, the numbers of patients admitted to hospital and deaths – which lag behind positive test results – have risen more modestly during the latest wave. Almost 47 million people have had a first shot of a Covid-19 vaccine. More than 37 million have had a second.

Mobility levels plateau despite ‘freedom day’

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The number of trips taken on the UK’s roads and using public transport has remained broadly unchanged over the past month, despite the government removing most pandemic restrictions on 19 July. According to Apple mobility data – which records requests made to Apple Maps for directions – bus and train journeys are 21% above levels recorded in January 2020, while walking and driving has also risen. However, overall retail footfall in mid July was still at 75% of the level recorded in the equivalent week of 2019, prior to the pandemic, reflecting continued caution as Covid infection rates remain high.

Delta variant fears weigh on global markets

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Concerns over the economic fallout from the Delta variant have weighed on global stock markets in the past month, as several advanced economies used tough travel restrictions and other measures to contain the latest wave in the pandemic. The FTSE 100 has dipped in recent weeks from a high of 7,164 in early July to about 7,000. Travel firms have recorded some of the biggest share price declines, as uncertainty about the spread of the virus fuelled concerns about further clampdowns on international flights.

Inflation jumps after slump in prices last year

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UK inflation jumped to 2.5% in June – its highest level in almost three years – with increases in the price of food, secondhand cars, clothing and footwear, eating and drinking out, and petrol and diesel. Some economists say central bank interest rates will need to rise to tackle higher rates of inflation. However, the Bank of England, which is tasked by the government to target inflation at 2%, believes the current burst is likely to prove temporary. According to the Office for National Statistics (ONS), part of the increase in the consumer prices index was caused by a bounceback in prices that were depressed during lockdown.

Supply chain disruption saps economic recovery

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Britain’s economic recovery from lockdown slowed sharply in July as businesses struggled with weaker consumer demand and wide-ranging shortages of staff and raw materials. Reflecting the impact on the economy of higher Covid infection rates and global supply chain disruption, the IHS Markit/Cips purchasing managers’ index, a closely watched gauge of private sector activity, dropped from 62.2 to 57.7 in July, with falls in the manufacturing and services sectors. Any reading above 50 indicates expansion. Growth was higher in the eurozone than the UK for the first time since January. However, the growth rates for private-sector activity in the US and China fell slightly.

Employment levels rise after lockdown

The number of workers on UK company payrolls surged in June by the most since the start of the Covid-19 pandemic, rising by 356,000, as employers rushed to hire staff as lockdown measures were relaxed. While the number of employees remained more than 200,000 below its level before the pandemic, data from the ONS showed a rise in job vacancies. The number of workers on furlough has steadily fallen, standing at about 1.5 million by mid July, compared with 5.1 million during the January lockdown. Having dropped slightly in recent months, the official unemployment rate remained unchanged at 4.8% in the three months to May, according to the latest figures, up from about 4% in early 2020.

Retail sales soar as England head to Euros final

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Football’s European Championship and England’s run to the final in it helped to fuel a rise in food and drink spending in June, lifting retail sales across Britain by a monthly rate of 0.5%, according to official figures. This offset a fall in household goods, clothing and furniture sales on the month, as consumers started to switch from buying physical goods to spending money on trips out and experiences as pubs, restaurants and other service providers continued to reopen. Overall, total retail sales remained 9.5% above pre-pandemic levels after a boom in online shopping during lockdown.

Government borrowing falls despite rising debt interest

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UK government borrowing fell in June as the reopening of the economy fuelled a rise in tax receipts, despite a record jump in debt interest payments to £8.7bn amid rising inflation. The ONS said the budget deficit – the gap between government spending and revenue – hit £22.8bn in June, down by £5.5bn on the same month a year ago. The OBR warned that higher debt levels and inflation were a growing risk for the government. But despite rising in June, debt servicing costs still remain at among the lowest levels in 320 years.

UK economic growth slows after reopening boom

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UK economic growth slowed to 0.8% in May after the boost from the reopening of indoor hospitality mid-month was offset by a contraction in building work and a slump in car production. Following growth of 2% in April, the slowdown took City economists by surprise, with forecasts predicting gross domestic product (GDP) would rise by 1.5% on the month. Car companies were forced to cut production amid a lack of computer chips, while shortages of timber and steel, combined with bad weather, brought many building projects to a standstill. UK GDP remained 3.1% smaller in May than in February 2020, before the pandemic.

House prices fall for first time since January

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House prices fell in June for the first time since January in a sign the UK’s housing market is finally starting to cool. The latest snapshot from Halifax, Britain’s biggest mortgage lender, showed the price of the average home slipped by 0.5% month-on-month to £260,358. The dip in prices coincided with June’s end of the full stamp duty holiday, which in England and Northern Ireland had removed the purchase tax on the first £500,000 of a property’s purchase price. The tax-free threshold fell to £250,000 this month and will revert to the original level, £125,000, in September, although there is still help for first-time buyers.

And another thing we’ve learned this month … ‘Pingdemic’ triggers widespread economic disruption

A rapid escalation in people needing to self isolate after being “pinged” by the NHS Covid app has brought widespread disruption to Britain’s economy in the past month, with small businesses forced into temporary closure, supermarket shelves running empty and train and bus journeys being cancelled. Exacerbating staff shortages in some areas of the economy, more than 600,000 people were told to isolate by the app last week as Covid-19 infections spiked. In response to the crisis, the government published a list of 16 critical sectors where some workers would be allowed to avoid isolation if they test negative, before the quarantine rules change on 16 August.

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