Over in America, the number of new unemployment claims has fallen - but still remains at a level unseen before the pandemic.

American workers filed 779,000 fresh applications for unemployment benefits last week, on a seasonally adjusted basis, down from 812,000.

Ignore seasonal adjustments, and the initial claims total fell to 816,247, from 839,772.

This indicates the US jobs market recovered slightly last week, having been badly hit by the ongoing Covid-19 pandemic.

But it also shows that layoffs have remained stubbornly high for months, above the pre-pandemic record of around 700,000 set back in 1982.

Neil Birrell, Chief Investment Officer at Premier Miton Investors, says:

“Some looser lockdown measures and the vaccine roll out have helped the US initial jobless claims to fall again this week, and by a lot more than expected.

Given that the President’s support package is not going through as smoothly as he would like, this is good news. However, it suits those that argue against the size of the package.

Importantly, the number of long term unemployed is falling further.”

Here’s my colleague Phillip Inman on the Bank of England’s move:

The Bank of England took a step closer to introducing negative interest rates for the first time on Thursday, after it gave lenders six months to prepare for such a move.

Threadneedle Street’s monetary policy committee (MPC) voted unanimously to keep the official interest rate at historically low levels while it agreed to set the deadline for banks to prepare themselves after policymakers said they were ready to make negative lending rates part of their toolkit.

According to the minutes of the MPC meeting, officials were split over asking lenders to put in place the measures needed to facilitate negative rates on loans and mortgages, with some fearing it would signal to investors that the central bank planned to move ahead in the next few months.

But the committee agreed that to include a cut in interest rates to below zero in the raft of measures available to policymakers, lenders would need to put in place the technical requirements allowing them to implement it at short notice.

There are fears that negative lending rates, which are expected to lower borrowing costs for households and businesses, would force high street banks and building societies to offer negative savings rates.

Savers would suffer a loss of income and pension funds, which also rely on deposit savings, would also be hit.

Several economists and strategists are predicting that the UK is unlikely to resort to negative interest rates.

Hugh Gimber, global market strategist at J.P. Morgan Asset Management, says:

The economic outlook is beginning to brighten with vaccine rollout proceeding at pace and, even in the event of a setback, the November decision to expand the QE programme has created ample firepower if more support does become warranted. With pent-up savings set to be unleashed later this year by consumers looking to make up for lost time, the likelihood of negative rates being implemented in the UK this year is reducing.

“That said, the MPC clearly has an eye on their options to guard against the next hit to the UK economy, whenever that may come, and the decision to ask banks to prepare the capability to implement negative rates should be viewed in this context. Careful wording in the minutes to stress that this decision should not be mistaken as a policy signal highlights the Bank’s understanding of what a momentous move this would be.

Away from the logistical challenge for the financial sector, negative rates would deliver a further hit to domestic savers that already face record low interest rates on cash deposits.

“With deep divisions in the MPC about the benefits of negative rates, this is not a decision that would be taken lightly.”

Silvia Dall’Angelo, senior economist at the International business of Federated Hermes, explains why negative interest rates might stay in the toolkit:

For a start, it will take at least 6 months to work out the operational obstacles. More generally, it feels like policymakers are well aware of the issues and the uncertain merits of the tool, which has not been particularly effective in other jurisdictions.

If the base case of a strong recovery over 2021 – taking economic activity back to its pre-crisis levels by Q1 2022 – pans out, the Bank will be glad to keep negative policy rates idle in its toolbox.”

Gurpreet Gill, macro strategist for global fixed income at Goldman Sachs Asset Management, also believes a rate cut this year is unlikely, as it might not help to stimulate the economy:

“Firstly, the BoE stressed that preparations should not be interpreted as an imminent policy signal, or indeed a “prospect at any time”.

Secondly, from a broader macro standpoint we don’t regard negative rates - which could adversely impact the banking sector - as an effective tool for downturn periods, even if they are accompanied by a tiered system of reserve remuneration.

Sterling has hit a near nine-month high against the euro, as the prospect of imminent negative interest rates recedes.

The pound has risen over €1.139, its highest point since last May, after the BoE gave banks six months to prepare for any cut below zero.

Traders may be concluding that the economic picture will look brighter in six months time, if Covid-19 vaccination programmes have allowed the economy to reopen.

Dean Turner, economist at UBS Global Wealth Management, reckons interest rates will not be taken into negative territory:

Markets were given some clarity on the negative rates debate. The Bank has indicated that it will take six months for the financial sector to prepare for such a move. The MPC were clear that it is not their intention to take rates lower, but it is worth preparing for the possibility in case it is needed in the future.

We do not expect the BoE to take rates into negative territory. In our view, they will remain on hold for the year. The economy should see a marked improvement in the coming months, which will change the tone of the debate for policymakers. Especially against a medium-term forecast for inflation that is close to the Bank’s target.

The pound bounced on the release as the tone of the minutes, especially with regards to negative rates, was at the hawkish end of expectations. In our view, the outlook for the pound remains positive and we expect it to rise above the 1.45 level against the US dollar over the next 12 months.”

The Bank of England has dampened the prospect of cutting UK interest rates below zero in the next few months.

Following a consultation with UK banks, the central bank has concluded they would need six months to prepare for negative interest rates. Moving sooner than six months would lead to “increased operational risks”.

In a statement, the BoE explains.

“The Prudential Regulation Authority’s engagement with regulated firms had indicated that implementation of a negative Bank Rate over a shorter timeframe than six months would attract increased operational risks,”

The BoE launched a consultation about the possibility of lowering Bank Rate below zero last year, as it weighed up how it would inject more stimulus into the economy if needed.

In a letter to bank bosses today, deputy governor Sam Woods, the CEO of the Prudential Regulation Authority, said the PRA would work with the banks to help them get ready to implement negative rates at any point after six months.

Woods writes:

On the basis of firms’ responses to this exercise, the PRA understands that the majority of firms would be able to implement tactical solutions to accommodate a negative Bank Rate within six months, without material risks to safety and soundness.

Taking this into account, and consistent with the PRA’s primary statutory objective to promote the safety and soundness of individual firms, along with its insurance policyholder protection objective and secondary competition objective, the PRA considers that an implementation period of shorter than six months would attract increased operational risks and could adversely impact some firms’ safety and soundness and the PRA’s wider statutory objectives.

Having considered the MPC’s request, as set out in the February MPC minutes, the PRA will now engage with PRA-authorised firms on their development of tactical solutions, with the aim of having firms put themselves in a position to be able to implement a negative Bank Rate at any point after six months.

The pound has rallied in response, recovering earlier losses against the US dollar.

The Bank of England has also predicted that the UK economy will shrink around 4% in the current quarter, due to the current Covid-19 lockdown.

But it also predicts that GDP was stronger than expected in the final three months of last year, because “more businesses appeared to be better prepared to continue operating than during the first lockdown”.

In its latest monetary policy summary, the BoE explains:

UK GDP is expected to have risen a little in 2020 Q4 to a level around 8% lower than in 2019 Q4. This is materially stronger than expected in the November Report.

While the scale and breadth of the Covid restrictions in place at present mean that they are expected to affect activity more than those in 2020 Q4, their impact is not expected to be as severe as in 2020 Q2, during the United Kingdom’s first lockdown.

GDP is expected to fall by around 4% in 2021 Q1, in contrast to expectations of a rise in the November Report.

The Bank of England’s Monetary Policy Committee has voted unanimously to leave UK interest rates unchanged, at their current record low of 0.1%.

The MPC has also left its asset purchase stimulus programme unchanged, meaning it will continue to buy up to £875bn of UK government bonds, as well as holding £20bn of corporate debt - leaving the total package at £895bn.

The UK construction sector has also made a weak start to the year, with output declining unexpectedly in January for the first time in seven months.

Data firm IHS Markit reports that its construction PMI, which measures activity across the sector, dropped to 49.2 last month -- a sharp decline on December’s 54.6.

This is the first time since May 2020 that the PMI has dropped below 50, which shows a contraction.

Construction firms reported that new order growth slowed, led by a slide in commercial property work, while housebuilding growth ebbed.

Building sites were allowed to keep operating during the current lockdown, but some report ‘greater hesitancy’ among customers.

Markit says:

Construction companies often noted that the third national lockdown and concerns about the near-term economic outlook had led to greater hesitancy among clients, especially for new commercial projects.

Building firms also reported that it is taking longer to receive raw materials and imported products, due to the disruption at UK ports. Around 45% of the firms surveyed said it was taking longer to receive supplies, with only 1% reporting an improvement.

Costs are rising sharply too, driven by rising prices for plaster, steel and timber.

Tim Moore, Economics Director at IHS Markit, explains:

“The construction sector ended a seven-month run of expansion in January as a renewed slide in commercial work dragged down overall output volumes. House building was the only major construction segment to register growth, but momentum slowed considerably in comparison to the second half of last year.

Construction companies continued to report major delays with receiving imported products and materials from suppliers, with congestion at UK ports contributing to the sharpest lengthening of delivery times since May 2020. Adding to the squeeze on the construction sector, rising steel and timber costs led to the fastest rate of input price inflation for just over two-and-a-half years.

The latest survey highlighted that construction companies have become more cautious about the business outlook. Output rebounded quickly after stoppages on site at the start of the pandemic, but hesitancy among clients in January and worries about near-term economic conditions resulted in a dip in growth expectations for the first time in six months.”

Teletext Holidays is the latest travel firm to feel the heat from the Competition and Markets Authority (CMA) for failing to refund travellers.

The CMA said it has launched its investigation under consumer protection law after receiving hundreds of complaints that people were not receiving refunds for package holidays cancelled due to the coronavirus pandemic.

In some instances, Teletext customers reported that they were promised refunds by a certain date, only to have that date pushed back.

The CMA will now engage with Teletext to gather further evidence on whether the company has broken consumer protection law.

Andrea Coscelli, CEO of the CMA, said:

“We understand that the pandemic is presenting challenges for travel businesses, but it is important that the interests of consumers are properly protected and that businesses comply with the law.

“We’ll be engaging with Teletext to establish whether the law has been broken and will take further action if necessary.”

Today’s announcement follows significant action by the CMA in relation to holiday cancellations. The CMA has written to over 100 package holiday firms to remind them of their obligations to comply with consumer protection law,.

The CMA is also investigating whether airlines have breached consumers’ legal rights by failing to offer cash refunds for flights they could not lawfully take due to the pandemic.

The SMMT also warns that the drop in car sales will hurt UK manufacturers:

With lockdown restrictions in place until March – the most important month of the year for the sector, accounting for one in five new car registrations on average – the industry will face a challenging year as showroom closures depress consumer demand, which has a knock-on effect on manufacturing output.

The group argues that showrooms should reopen that the “earliest opportunity” once it’s safe, with Mike Hawes, SMMT chief executive, saying:

“Following a £20.4 billion loss of revenue last year, the auto industry faces a difficult start to 2021. The necessary lockdown will challenge society, the economy and our industry’s ability to move quickly towards our ambitious environmental goals.

Lifting the shutters will secure jobs, stimulate the essential demand that supports our manufacturing, and will enable us to forge ahead on the Road to Zero. Every day that showrooms can safely open will matter, especially with the critical month of March looming.”

It’s official, UK car dealers have made their worst start to a new year since 1970.

Industry body SMMT reports that just 90,249 new cars were registered last month – the weakest figures for any January in just over 50 years. That’s down from almost 150,000 a year ago, just before the pandemic hit Europe.

UK car showrooms were forced to close under the current lockdown, while many commuters are stuck at home, meaning sharply weaker demand.

That’s despite dealers using despite click and collect services, and home deliveries, to allow customers to buy cars during the current restrictions on non-essential businesses.

The slump was felt across the market, with sales of private cars falling 38.5% and fleet purchases down 39.7%

Petrol sales halved, while diesel was down over 60% -- with more customers opting for electric vehicles instead.

The SMMT says:

Declines were also recorded in both petrol and diesel cars registrations, which fell by -62.1% and -50.6% respectively. On a positive, however, battery electric vehicle (BEV) uptake grew by 2,206 units (54.4%) to take 6.9% of the market, as the number of available models almost doubled from 22 in January 2019 to 40 this year.

Combined, BEVs and plug-in hybrid vehicles (PHEVs) accounted for 13.7% of registrations.

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

Britain’s car industry has made a spluttering start to 2021, as the latest Covid-19 lockdown hit the economy.

New car registrations slumped around 40% year-on-year in January, figures due later this morning are expected to show.

With much of the country under lockdown, and many workers facing a further stretch of home-working, demand for vehicles was its lowest in decades. That’s despite dealers trying to drum up demand through online sales, click-and-collect services and deliveries.

Reuters explains:

British new car registrations fell by around 40% year-on-year in January, according to preliminary industry data released on Thursday, after nearly all of the United Kingdom spent most of the month in lockdown.

Sales were at their lowest level for a January in decades, according to industry body the Society of Motor Manufacturers and Traders (SMMT).

The official figures are due at 9am.

2020 was the worst year for UK car sales since the early 1990s, and today’s figures will highlight the ongoing economic damage being caused by the pandemic.

The figures come as the UK government faces mounting pressure to plug gaps in its emergency coronavirus wage subsidy schemes at the March budget to support millions of self-employed people and other workers excluded from furlough.

My colleague Richard Partington explains:

MPs and campaign groups said the chancellor, Rishi Sunak, had repeatedly ducked opportunities to fix gaps in furlough and the self-employed income support scheme (SEISS) for almost a year since the Covid-19 pandemic began.

Caroline Lucas, the Green party co-chair of the all-party parliamentary group Gaps in Support, said it was “completely unacceptable” that more than 3 million people had been completely left out.

“While it was understandable at the beginning of the pandemic, when the Treasury had to act fast, that some new support schemes didn’t work as well as they should, it’s a scandal that over 10 months later, so many are still falling through the gaps,” she told the Guardian.

Optimism that successful vaccine rollouts will stem the Covid-19 pandemic are supporting the markets again today, with the FTSE 100 index rising by 25 higher points or 0.4% to 6532 points,

Later today we’ll hear from the Bank of England, as it sets interest rates and publishes its latest economic analysis and inflation projections.

The agenda

• 9am GMT: UK car sales figures for January
• 9.30am GMT: UK construction PMI survey for January
• 12pm GMT: Bank of England interest rate decision
• 1.30pm GMT: US weekly jobless figures
• 3pm GMT: US factory orders