Gilt yields continued their decline during July, driven down by concerns over the prospect of a “second wave” of coronavirus cases. The yield on the ten-year gilt fell from 0.17% to 0.11% over the month.
Having contracted by 6.9% in March and 20.3% in April, the UK economy expanded by 1.8% in May as lockdown measures began to ease. Manufacturing grew by 8.4% during the month, while construction grew by 8.2%.
Between February and May, the economy shrank by 24.5%. The British Chambers of Commerce (BCC) observed that May’s rally was likely to reflect “the partial release of pent-up demand … rather than evidence of a genuine recovery”. Looking ahead, Bank of England (BoE) policymaker Silvana Tenreyo predicts the UK economy will undergo an “interrupted or incomplete V-shaped trajectory”, hampered by ongoing risk aversion and social distancing, alongside higher unemployment.
Elsewhere, appearing in front of the Treasury Select Committee, BoE Chief Economist Andy Haldane said that the UK economy had “clawed back” about half of the 25% fall in activity it experienced in March and April, although the unemployment rate may have reached around 6% by the middle of July. The UK’s unemployment rate remained unchanged at 3.9% in the three months to June, shored up by the Government’s furlough scheme. However, the number of UK payroll employees fell by 649,000 over the quarter, while job vacancies plunged by more than 58%.
The Office for Budget Responsibility (OBR) has forecast that between 10% and 20% of furloughed workers will lose their jobs once the scheme ends, and the UK economy is not expected to recover to pre-pandemic levels until around the end of 2022 – although under the OBR’s worst-case scenario, this could stretch to 2024.
Meanwhile, the Organisation for Economic Cooperation & Development (OECD) warned that the UK’s rate of unemployment is likely to reach 11.7% towards the end of this year and could rise as high as 14.8% if the UK experiences a second wave.
Government debt reached record levels between April and June, rising to £1.98 trillion. The Government borrowed £127.9 billion between April and June, more than twice the £55.4 billion borrowed in the whole of the previous financial year. Debt at as a percentage of GDP was 99.6% at the end of June, representing the highest debt-to-GDP ratio since the financial year ending in March 1961.