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Eco Week

Coming in to land
11/28/2021 • By Jean-Luc PROUTAT

Although there was no lack of effort from the British government in dealing with the coronavirus pandemic (20 points of GDP was directly transferred to the economy to tackle the health crisis, twice the European average), it was also one of the first to have decreed the end of “whatever it takes”. In October, the main employment support measures – the Coronavirus Job Retention Scheme and the Self-Employed Income Support Scheme – came to an end. 

Eco Week

Fourth wave 
10/24/2021 • By Jean-Luc PROUTAT

Did the UK government lower its guard too quickly? Since early July, it has lifted nearly all of the sanitary barriers to counter the Covid-19 pandemic. London no longer requires masks to be worn in public spaces, even indoors, nor the presentation of a “health pass”. These measures are left to the discretion of each individual. As a result, the “freest country in Europe”, according to UK minister David Frost, is also the one that reported the highest number of new cases in fall 2021: nearly 45,000 new cases a day. This is ten times more than in France, while the two countries have comparable populations and vaccination rates (67% altogether). 

Eco Perspectives

Brexit breaks
10/05/2021 • By Jean-Luc PROUTAT

After paying a heavy toll to the Covid 19 pandemic, the UK is getting back on its feet. Now that more than 80% of the adult population has been vaccinated, the UK economy was able to reopen for business this summer and to operate almost normally despite the spread of the highly contagious Delta variant. Just as the recovery is running up against supply-side constraints, the government of Boris Johnson is removing fiscal support measures as it proclaims the end of “whatever the cost”. Euphoric so far, the recovery should calm down somewhat by the end of the year. 

Eco Flash

Taxes are coming: Fall 2021 update on the UK economy
09/21/2021 • By Jean-Luc PROUTAT

After paying a heavy toll to the Covid 19 pandemic, the UK is getting back on its feet. Now that more than 80% of the adult population has been vaccinated, the UK economy was able to reopen for business this summer and to operate almost normally despite the spread of the highly contagious Delta variant. Just as the recovery is running up against supply-side constraints, the government of Boris Johnson is removing fiscal support measures as it proclaims the end of “whatever the cost”. Euphoric so far, the recovery should calm down somewhat by the end of the year.

Eco Week

Inflation surges
09/19/2021 • By Jean-Luc PROUTAT

Inflation largely surpassed expectations at 3.2% year-on-year, the highest level since 2012, and well above the Bank of England’s official target of 2%. As a result, BoE Governor Andrew Bailey must officially explain why inflation is above target and whether the situation will last.

Charts of the Week

UK banks have lost ground on The Banker ’s ranking since the announcement of Brexit
07/20/2021 • By Thomas HUMBLOT

The Banker’s rankings of the UK’s five largest banking groups by Tier 1 capital – HSBC, Barclays, NatWest (formerly RBS), Lloyds and Standard Chartered – have generally declined since 2013. This trend, which was initially in step with all of the largest European banks, mainly due to differences in growth rates between geographic regions, has been even sharper in the UK since the vote for Brexit in 2016. HSBC almost maintained its ranking, thanks to its geographic diversification.  The decline in the rankings of the UK banks can be attributed to the absolute decline in Tier 1 capital (-12.6% between 2013 and 2020), but also to the increase in the Tier 1 capital of the other largest euro area banks (+29.6%)

Eco Week

The Delta variant threatens

07/18/2021 • By Jean-Luc PROUTAT

With nearly 35,000 new daily cases reported last week, the Covid-19 virus is gaining ground again in the UK.  There is an encouraging sign, however, that proves the effectiveness of the vaccine: the number of severe cases seems to be increasing much less rapidly than during previous waves. 

Eco Perspectives

A poor start
07/06/2021 • By Jean-Luc PROUTAT

No sooner had the divorce agreement with the European Union been signed than the UK started disputing its terms. On 16 March, the British government was formally notified by the European Union for breaches of the Protocol on Ireland and Northern Ireland and violation of the duty of good faith. The final outcome, which can include sanctions, is yet to be decided. The fact remains that Brexit, described as a “historic mistake” by the remaining 27 members of the EU, appears as nothing more or less than what it is: a clear break. Admittedly, it will not stop the UK economy from recovering

Eco Week

Between relaxation and stress
05/30/2021 • By Jean-Luc PROUTAT

The double whammy of Brexit and the health crisis has hit the economy hard. In 2020, GDP contracted by 9.8%, the weakest performance by a G7 country and the UK’s worst year since 1920. In the first quarter of 2021, GDP fell by a further 1.5%, due to lockdown measures introduced to tackle the second wave of the epidemic and despite considerable fiscal support

Eco Perspectives

The British lead the way in vaccination
04/08/2021 • By Jean-Luc PROUTAT

Gambling has risks, but sometimes you win big. No stranger to risky gambles (Brexit, herd immunity to Covid-19…) the UK Prime Minister, Boris Johnson, can now claim that one of his wagers – betting early and big on vaccines – has allowed his country to be amongst the first to see the light at the end of the tunnel. Having been in strict lockdown since the beginning of the year, and whilst also suffering from a collapse in trade with the European Union, the economy now seems to have touched bottom; economic surveys and mobility reports promise better days ahead. Both fiscal and monetary policy will help support the recovery, before thoughts move to addressing the deficit, with the first turn of the screw expected in 2023.

Eco Week

The end of the beginning?
03/29/2021 • By Jean-Luc PROUTAT

Having been hit particularly hard by Covid-19 (more than 126,000 Britons have died so far), the UK is now one of the countries vaccinating most rapidly. With 31 million doses administered since the beginning of the year, coverage of the population has reached 46%...

Eco Conjoncture

The trajectory of UK public finances after Covid
03/01/2021 •

Before the onset of the Covid-19 pandemic, the United Kingdom had already begun to come out of the “age of austerity”, to borrow a phrase from former Prime Minister David Cameron. The massive intervention of UK authorities to support the economy through the Covid-19 sanitary and economic crises has significantly strengthened this trend. The government deficit ran at almost 20% of GDP in 2020, and the ratio of government debt to GDP increased by twenty percentage points to nearly 100%. Once the crisis is over, some adjustments will be needed. That said, the Treasury’s eagerness to bring public finances back under control rapidly could be counterproductive if it stifled the economic recovery

Eco Week

Some light at the end of the tunnel
02/05/2021 •

Unlike major European Union (EU) countries, UK still has not released its GDP for the fourth quarter of 2020. Nevertheless, the monthly indicator of the Office for National Statistics (ONS) gives a foretaste of how the economy fared during this period. In November, GDP contracted for the first time since April, falling by 2.6% as a second lockdown was imposed in England. This drop is due to the services sector, as the index for the production sector stagnated and the one for the construction sector increased...

Eco Flash

Brexit: The worst has been avoided
01/05/2021 •

The United Kingdom has since 1 January fully exited the European Union, and a free-trade agreement has been found, as has been customary with Brexit, at the last minute. While that is good news for the British and European economies, Brexit is still “hard” and will surely trigger substantial economic losses in the long term.

Eco Perspectives

Another contraction in Q4, before a definitive recovery?
12/16/2020 •

The record fall in UK GDP in the second quarter gave way to unprecedented growth in the third, and the news that an effective vaccine against Covid-19 will soon be widely available suggests that the economy could start its definitive recovery in 2021. However, the UK is not out of the woods yet. Given that a second national lockdown was introduced in England in November, there is little doubt that economic activity will drop again in the fourth quarter. Moreover, the strength of the recovery is, because of Brexit, more uncertain than elsewhere. This not only because of the UK’s decision to leave the EU’s single market and customs union, but also due to continued uncertainty over whether a free-trade agreement will be found. 

Eco Conjoncture

United Kingdom: what will be the economic consequences of a hard Brexit?
11/29/2020 •

With only a few weeks left before the end of the transition period that has extended the United Kingdom’s de facto membership of the European Union, considerable uncertainty remains about Brexit and its consequences. Whatever the outcome of the current negotiations on a free trade agreement, it is clear that this will be a hard Brexit. From this observation, a number of important questions emerge. What will be the consequences of the UK’s withdrawal from both the EU’s single market and customs union? What effect will Brexit have on the UK economy, and will it differ across sectors? How will Brexit influence future economic policy in the UK?

Eco Week

Tuned in to BBC – Budget, Brexit, Covid
11/27/2020 •

According to the first estimate from the Office for National Statistics (ONS), United Kingdom GDP rose by 15.5% in the third quarter, in line with consensus estimates, as restriction measures were progressively lifted following the first lockdown. Despite this record increase, the level of GDP was still nearly 10% below where it was at the end of 2019. While Spain is in a similar position, the GDPs of the United States, France, Germany and Italy have all returned to about 5% below where they were back then...

Eco Week

Recovery already showing signs of weakness
10/16/2020 •

Most economic activity indicators have continued to improve recently. That said, the idea of a V-shaped recovery is already forgotten. While the economy is still far from its pre-crisis level, the recovery seems to be running out of steam...

Charts of the Week

United Kingdom: Mortgages caught between support and restriction
10/13/2020 •

New mortgage lending fell by 33% year-on-year in the second quarter of 2020, the steepest decline since 2008. British lenders have been more cautious since the beginning of the year. This is evidenced by the decrease of 4.0 percentage points (pp) in the share of loans with a loan to value (LTV) figure in excess of 75%; the bulk of this concerns loans with an LTV between 75% and 90% (-3.2 pp). To tackle this trend, and with Nationwide’s property price index continuing to rise, the UK government plans to boost home ownership by encouraging loans with an LTV of up to 95%

Eco Flash

Brexit: Time is running out to reach an agreement

10/12/2020 •

Although the United Kingdom officially left the European Union on 31 January 2020, trade relations between the two trading blocs remain intact during a transition period. Barring a spectacular turn of events, this period will end on 31 December. Whatever happens, the UK is heading towards an exit from both the EU’s single market and customs union. This means that it will be a “hard” Brexit. And it could be the hardest possible if the two parties failed to agree on a free trade agreement. In fact, UK and EU negotiators have just completed their ninth round of talks – the last initially planned – but there are still major divergences

Eco Perspectives

Out of the frying pan into the fire?
09/30/2020 •

While UK GDP has bounced back since May and has made up half of lost ground caused by the Covid-19 pandemic, the economic crisis is still far from being over. In particular, concerns are mounting over the labour market, as the government’s furlough scheme will be terminated in the next few weeks. Meanwhile, the end of the transition period that maintains the UK in the EU single market and customs union is coming up fast. Disagreements during the negotiations raise fears about the UK leaving without a trade agreement, which could have an even bigger impact on the economy in the long term than the current crisis.

Eco Week

While the economy is recovering, Brexit concerns are mounting
09/11/2020 •

According to data from the Office for National Statistics (ONS), GDP in the United Kingdom dropped by more than 20% in the second quarter, which was the worst performance in Europe...

Eco Flash

Measures to support bank financing of businesses

07/21/2020 •

The BoE and UK government have responded to the Covid-19 crisis with a broad range of measures. These were announced swiftly, but some have taken quite a while to implement, particularly when it comes to financial support for private sector companies. These measures share the feature of relying heavily on the country’s banking sector, which is in solid shape despite facing the same challenges as banks in other European countries. All this is taking place against the background of Brexit and the government’s refusal to extend the transition period on the basis that this would increase uncertainty for businesses and could reduce the flexibility they will need to react to the health crisis.

Eco Week

Hopes for a quick rebound are fading
07/17/2020 •

After falling by more than 25% between March and April, UK GDP rose by 1.8% in May. While restriction measures only started to be eased in mid-June, this increase still disappointed expectations. None of the forecasters polled by Reuters was banking on such a small rise, and the consensus expected a 5.5% rebound. This is explained by the services sector’s poor performance. While the industrial production and services indices both fell by about 25% between March and April, the former rose by 6.0% in May whereas the latter ticked up by only 0.9%. It is very likely that conditions in the services sector will improve more rapidly in the coming months. After all, most non-essential shops started welcoming customers again on 15 June, and the tourism and hospitality sector reopened on 4 July...

Charts of the Week

United Kingdom: Is the TFSME more effective than the TFS in lowering business loan rates?
07/14/2020 •

Following the example of the Term Funding Scheme (TFS) introduced by the Bank of England (BoE) in the summer of 2016, the Term Funding Scheme Small and Medium-sized Enterprises (TFSME) announced in March 2020 aims to support the supply of loans to businesses via a four-year refinancing program granted to credit institutions at a lower rate than that of the main refinancing operations[1]. Unlike the TFS, the TFSME more specifically targets the financing of small and medium-sized enterprises (SMEs). Above all, operational since April 15, the scheme resulted in GBP11.9bn drawdown from credit institutions on 27 May and already came with a significant drop in average borrowing rates of the all private non-financial companies (SNFs), and even more so in the case of SMEs

Until the UK voted to leave the European Union in June 2016, its economy was one of the fastest growing in the developed world. That was despite sluggish growth in the Eurozone, its main trading partner. Since then, however, output has grown at a moderate pace, weighed down by a slowdown in business investment, consumption, domestic demand, potential growth, capital accumulation, net migration from the EU, and productivity. That said, external demand and a weaker sterling supported exports until the Covid-19 crisis occurred.

Because the government waited before implementing restriction measures, the pandemic spread rapidly throughout the UK and the lockdown that was finally imposed was particularly long. The recession was extremely severe (GDP down 9.8% in 2020).

After a long and painful negotiation with the European Union (EU), the UK actually left the single market on 1st January 2021; achieving the so-called Brexit process. Although the EU and the UK managed to avoid customs duties, the return of non-tariff barriers dampened trade volumes. Besides, the UK has reached a wide range of bilateral deals with other trading part.