Time for a recap

UK chancellor Rishi Sunak has downplayed suggestions that taxes may rise soon to pay the cost of Covid-19. In a series of media interviews, Sunak insisted that his priority was protecting jobs, or helping people adapt into new areas.

He pledged:

What’s happening in our economy is significant and severe. Many people are losing their jobs.

So the focus of all my attention in the short term is doing what we can to support as much employment as possible.

Sunak warned that Britain’s record-breaking borrowing wasn’t sustainable in the long term. He refused to speculate on what taxes might rise (something that might mean breaking manifesto pledges) but pledged to maintain the triple-lock on pensions.

But there are plenty of concerns that unemployment will rise sharply this winter, once the government’s furlough scheme winds down.

UK building firms continued to cut jobs in September, a new survey found, even though activity jumped thanks to a pick-up in house-building.

Data firm Markit reported that:

The strongest performing category was home building, where firms registered a sharp expansion in activity for the fourth month running. Work undertaken on commercial projects also rose strongly, increasing at quickest pace for over two years.

Meanwhile, civil engineering activity fell for the second month running and at the sharpest rate since May.

Unemployment fears are also looming over the hospitality industry. MPs were warned that more than half a million jobs are at risk.

Globally, the IMF warned that the Covid-19 calamity wasn’t over, although it is expected to raise its growth forecasts for 2020 slightly.

The World Trade Organisation also revised up its forecasts, but cautioned that a renewed wave of Covid-19 infections could derail the recovery.

German factory orders jumped... but the US trade deficit swelled.

In the City, shares in airlines have jumped on hopes that the UK government rolls out a new Covid-19 testing system. Rolls-Royce, which makes jet engines, is up 19% today, with hotel operators and banks also lifted.

Despite Britain’s slump into recession, sales of expensive watches are booming:

And.. the UK financial watchdog is clamping down on bitcoin derivative contracts, saying they are too dangerous for consumers to dabble in.

See you tomorrow! GW

More trade news! The World Trade Organization has upgraded its forecast for trade in goods this year.

But, the WTO still expects that global merchandise trade would fall by 9.2% this year - a hefty decline - up from a previous forecast of between 13% and 32%.

However, the WTO then predicts trade would increase by 7.2% next year - meaning it will take until at least 2022 to recover to pre-Covid levels.

The upward revision chimes with the IMF’s hint that next week’s growth forecasts will be less dire than before.

The WTO warns, though, that a resurgence of Covid-19 could hit trade again:

Strong trade performance in June and July have brought some signs of optimism for overall trade growth in 2020. Trade growth in COVID-19 related products was particularly strong in these months, showing trade’s ability to help governments obtain needed supplies. Conversely, the forecast for next year is more pessimistic than the previous estimate of 21.3% growth, leaving merchandise trade well below its pre-pandemic trend in 2021.

The performance of trade for the year to date exceeded expectations due to a surge in June and July as lockdowns were eased and economic activity accelerated. The pace of expansion could slow sharply once pent up demand is exhausted and business inventories have been replenished. More negative outcomes are possible if there is a resurgence of COVID‑19 in the fourth quarter.

America’s US trade deficit has surged to its highest level since 2006, due to a jump in imports.

The Commerce Department has reported that the gap between US imports and exports rose $67.1bn in August, a jump of almost 6%, and the biggest in 14 years.

The trade gap swelled because imports rose by 3.2% to $239bn, while exports only increased by 2.2% to $171bn. The US-China trade deficit declined, though, by $1.9bn to $26.4bn.

Donald Trump has hoped to cut America’s trade deficit, which he blamed on other countries not giving US exporters a fair deal.

As this chart shows, the US trade deficit has been rising sharply since the pandemic hit the global economy:

Newsflash: The head of the International Monetary Fund has said the Covid-19 crisis is ‘far from over’, despite the world economy looking a little better than feared.

Speaking on an London School of Economics event, IMF managing director Kristalina Georgieva is warning that the recovery will be long and bumpy, and that countries should expect setbacks.

My key message is this: The global economy is coming back from the depths of this crisis.

But this calamity is far from over. All countries are now facing what I would call ‘the long ascent’ – a difficult climb that will be long, uneven, and uncertain. And prone to setbacks.

Georgieva indicates that the IMF will make a “small upward revision” to its growth forecast for 2020 next week, partly because China’s economy is recovering faster than expected.

But, the Fund still expects a “painful and uneven recovery in 2021”.

Britain’s financial watchdog is cracking down on the sale of financial products that track Bitcoin, having concluded that most people lose money on them.

The Financial Conduct Authority is banning the sale of derivative contracts which give exposure to cryptocurrencies from January. It says they offer a high risk of losses due to a lack of consumer knowledge, and the extreme volatility of crypto assets.

The FCA says:

We believe that retail consumers can’t reliably assess the value and risks of derivatives (contracts for difference, futures and options) and exchange traded notes (ETNs) that reference certain cryptoassets.

It cites these four reasons:

• inherent nature of the underlying assets, which have no reliable basis for valuation
• presence of market abuse and financial crime (including cyberthefts from cryptoasset platforms) in the secondary market for cryptoassets
• extreme volatility in cryptoasset prices movements
• inadequate understanding by retail consumers of cryptoassets and the lack of a clear investment need for investment products referencing them

It estimates that the ban will reduce harm by £19m to £101m a year for retail investors.

Rishi Sunak has also been warned that more than half a million jobs could soon be lost across the UK hospitality sector.

With a 10pm curfew in place, and the chancellor’s furlough scheme ending this month, the industry fears a surge in redundancies.

Reuters has the details:

Britain’s hospitality trade is likely to see more than half a million job losses after the government’s furlough scheme ends this month, as local lockdowns and reduced opening hours hurt the sector, an industry representative said on Tuesday.

Kate Nicholls, chief executive of UK Hospitality, told Britain’s parliament that recent restrictions meant she needed to revise up a forecast of 560,000 permanent job losses – out of 900,000 currently furloughed workers – that the body made last month after surveying its members.

“We anticipate that number will be far higher now as a result of the local restrictions, the national constraints on events, working from home, the curfew etc,” she told the Treasury committee, which is examining job support measures.

More here: UK hospitality trade warns of more than half a million job losses

In Germany, hopes for an economic revival are building after its industrial base reported a jump in orders.

German factory orders rose by 4.5% month-on-month in August, accelerating from July’s 2.8% rise, and much faster than the 2.6% expected.

Manufacturers got a big boost from rising exports, with orders for heavy-duty investment goods from the euro area up more than 20%.

Germany’s economy ministry hailed the figures, saying:

The catch-up process for new industry orders is continuing at a remarkable pace”.

Fiona Cincotta of City Index agrees that Germany’s recent economic data is encouraging:

The strong data comes following impressive German retail sales in the previous week and falling unemployment, raising optimism surrounding the economic recovery in the Eurozone’s largest economy.

The data may also show that global trade is picking up....

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, says that UK building firms “took off in September” as lockdown measures eases.

Brock points out that construction grew faster than the services and manufacturing sectors last month (according to the latest PMI reports).

Fuelled by the easing of lockdown measures, new orders rose for the fourth month in a row and at the quickest pace since the beginning of the year before the pandemic struck. Of the three monitored subsectors, house building was the strongest performer, with activity increasing for the second month in a row, partially driven by residential-related services such as home improvements.

However, civil engineering took another backwards step and progress worsened significantly as bigger construction developments stayed in suspended animation.

But the big danger is that more jobs will be lost as the furlough scheme ends.

Brock fearing a surge in redundancies this autumn and winter:

Government support schemes are winding down, so the bigger worry remains levels of job creation. With another drop in employment numbers, vacancies were sparse and further redundancy schemes could be on the cards once this pent-up demand for work is satisfied.

But for now, builders are stocking up for Brexit and Covid preparations, so purchasing remains strong in spite of longer delivery times and some shortages. Optimism is at a seven-month high, so builders are enjoying this resurgence in activity following the summer lows.

Britain’s construction industry has reported its biggest jump in new business since the Covid-19 lockdown was lifted.

But despite this recovery, building firms are still cutting jobs.

Data firm IHS Markit reports that construction activity increased in UK construction activity in September, primarily due to increased homebuilding.

Purchasing managers across UK building firms reported a surge in new orders, encouraging them to buy more stock at the fastest pace in almost five years.

Markit says:

The strongest performing category was home building, where firms registered a sharp expansion in activity for the fourth month running. Work undertaken on commercial projects also rose strongly, increasing at quickest pace for over two years.

Meanwhile, civil engineering activity fell for the second month running and at the sharpest rate since May.

This pushed up Markit’s construction PMI to 56.8 for September, up from 54.6 in August -- showing faster growth (50 points = stagnation).

But the survey also found that building firms continued to cut staff -- with some releasing employees who had been moved onto Rishi Sunak’s furlough scheme (which ends this month).

Markit says:

On the employment front, staff numbers continued to fall in September.

However, the rate of workforce contraction eased to the slowest for seven months. When explaining job cuts, some panellists mentioned releasing furloughed workers following a restructuring of their operations.

Reaction to follow...

Meanwhile in the markets.... Britain’s FTSE 100 has dropped by 0.5% in early trading, confounding expectations for a small rise.

Interestingly, companies worst hit by Covid-19 are among the top stock market risers this morning.

Rolls-Royce, whose jet engine business’s turnover has been pummelled by the pandemic, has jumped 10%. Rolls finally launched a £5bn financing package last week

IAG, which owns British Airways, has gained 3%, with Whitbread (owner of the Premier Inns hotels) up 1.7%.

On the FTSE 250 index, budget airline easyJet has jumped 4%.

Yesterday, the UK government indicated it could introduce Covid-19 testing for international arrivals at the airports, in an effort to cut the 14-day quarantine period, something the airline industry has been pushing hard for.

Although, as my colleague Simon Murphy explains, there are a few options being considered:

The beleaguered aviation industry had been lobbying for a two-test system, whereby travellers are tested at an airport on arrival from at-risk countries and again five or eight days later – with negative results allowing them to leave isolation earlier.

However, the Guardian understands that the UK government is considering overlooking tests at airports, instead opting for a single test for travellers after a period of isolation shorter than the current two-week requirement.

Another option on the table is a different type of two-test approach that would see international passengers tested prior to departure in the country they are travelling from and again several days after arriving.

But shares in online grocer Ocado, a beneficiary of this year’s crisis, have fallen over 4%. Over the weekend, Waitrose reported that its online sales had jumped by a fifth since being ditched by Ocado in favour of Marks & Spencer’s food offerings.

The Today Programme then challenge Sunak on his claim yesterday that there’s a ‘sacred’ responsibility to balance the books.

Q: Which taxes will rise, and when?

Sunak give his usual answer - he can’t comment on future fiscal policy.

He repeats his earlier point that Britain is borrowing “enormous, record sums of money” to pay for the recession, support jobs and fund the NHS [possible over £300bn this year, double the previous record]

It’s the right approach, but not sustainable, Sunak argues.

Today’s Nick Robinson has been thumbing through the 2019 Conservative manifesto. It pledged that the government won’t put up VAT, or income tax, or national insurance, or break the pension’s triple lock.

Q: Won’t you have to rip up one or more of these?

Those promises are very important to us, and we intend to deliver on them, says the chancellor, before adding promptly that he “can’t comment” on any future tax changes.

Robinson compares Sunak to St Augustine, joking that the chancellor wants to be fiscally virtuous, but not quite yet.

Sunak bats back that the government is primarily focused on jobs.

We need to get through this, and once we get through it of course we need strong public finances.

These crisis come along every so often, and when they come along we need to be strong enough to respond.

From LBC to BBC TV.... where Rishi Sunak has warned that the UK can’t run huge deficits indefinitely.

The chancellor argue that the current borrowing levels are correct now, but not “sustainable” indefinitely.

“This year we’re obviously having to borrow an enormous amount of money to provide support to the economy at a time of crisis, that’s the right thing to do,”

“In terms of the medium term... obviously this can’t carry on forever. This level of borrowing, which will be record levels pretty much this year, is not sustainable in the long run.”

Britain’s national debt has certainly soared this year - hitting £2trn for the first time ever. As a share of the economy, it’s the largest since the early 1960s:

But there’s absolutely no sign that Britain faces a debt crisis. It’s cheaper for the UK to borrow than ever before, with 10-year gilts (government debt) trading at a yield of below 0.3% per year.

Rishi Sunak has also been speaking to LBC radio - where he’s reassured pensioners that the pensions triple lock is safe.

Asked about the pledge to raise pensions in line with earnings, prices, or 2.5% (whichever is higher), the chancellor indicates that it remains intact despite the pressure on the public finances.

“Yes, our manifesto commitments are there and that is very much the legislative position.

We care very much about pensioners and making sure they have security and that’s indeed our policy.”

LBC’s Theo Usherwood has tweeted the key points:

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Britain’s Covid-19 jobs crisis is building day by day, with cinema group Cineworld putting 5,500 staff out of work from Thursday as it shuts its screens.

And faced with this surge of unemployment, chancellor Rishi Sunak is playing down suggestions that taxes will be hiked soon - pledging to protect jobs. Critics, though, say the government still isn’t providing the support needed.

Speaking on Sky News this morning, Sunak insists that his “overwhelming focus” at the moment trying to protect and support as many jobs as possible.

What’s happening in our economy is significant and severe. Many people are losing their jobs.

So the focus of all my attention in the short term is doing what we can to support as much employment as possible.

Yesterday, Sunak claimed there was a “sacred duty” to balance the books (despite planning to run the UK’s largest ever deficit this year), prompting talk that people will be clobbered with tax rises.

Today, he’s suggesting that this duty may remain unfulfilled... in the short term at least, saying:

Over time, yes, we need sustainable public finances. In the short term, the best way to have long term sustainable public finances is to protect as many jobs as possible.

Sunak also declined to comment on where any future tax rises might fall, insisting that “my focus is protecting jobs and employment”.

We learned last week that more than a third of UK employers plan to make staff redundant over the next three months, across the economy, with retailers particularly badly hit by the pandemic.

Sunak insists that the measures he’s brought in this year will help, such as ‘Pay as you grow’ company loans and the Kickstart scheme for younger workers.

But he also gives a clear warning that the unemployment total will continue to rise in the coming months.

Denying that he’s keen on a move to Number 10 Downing Street, Sunak says he has enough on his plate in the Treasury.

Hundreds of thousands of people are losing their jobs as we speak. Many more will.

That’s happening on my watch and I need to try and do what I can to provide fresh opportunity for people and protect as many jobs as possible.

But the crisis in the cinema industry shows that Sunak’s new wage subsidy scheme, which supports workers on reduced hours, is no use for a company whose sales have been heavily crushed, if only temporarily, by the pandemic.

As Labour’s shadow business secretary Ed Miliband tweets, Sunak’s job support scheme “just doesn’t work”

Also coming up today...

We find out how building firms in the UK, and Europe, fared last month. European stock markets are on track to open slightly higher, after US president Donald Trump left hospital last night.

With Trump back in the White House, the odds of a US stimulus package being agreed may be a little higher. But the president does still have Covid-19, and should be isolating; his own doctor agrees that he’s not “out of the woods” yet.

The agenda

• 8.30am BST: Eurozone construction PMI for September
• 9.30am BST: UK construction PMI for September
• 9.35am BST: ECB president Christine Lagarde gives a ‘fireside chat’ for the WSJ’s online CEO Council Summit
• 1.05pm BST: IMF chief Kristiana Georgieva speaks about “Overcoming the Crisis and Building a More Resilient Economy”
• 3pm BST: US JOLTS survey of job vacancies in August