Despite the suspension of the AstraZeneca/Oxford University vaccine by 13 EU countries this week over fears of a link to blood clots, Nicola Nobile, economist at Oxford Economics, reckons that the EU should still be able to meet its vaccination target of giving 70% of adults the jab before the end of the summer.

The main story this week in Europe concerned the vaccination programme. The AstraZeneca saga ended yesterday with the EU regulator agency stressing that the vaccine is safe. Most EU countries have since announced the resumption of vaccinations.

At this stage, it is hard to assess if this will have any confidence impact on the uptake of the vaccines, but it is clear that the “operational” impact of the suspension will not have meaningful consequences. In fact, despite these bad few days, the EU target of vaccinating 70% of adults before the end of the summer is still likely to be met, in line with our view set out at the start of February.

Iggo adds:

The US is leading the reflation [stimulating the economy by increasing the money supply or by reducing taxes]. It is doing a great job vaccinating people (100 million people so far) and much of the economy is re-opening. Households are now starting to receive $1,400 checks per person. That will boost spending.

Excess savings should also come down, boosting spending. The Fed is not exactly tipping another bottle of Vodka into the punch bowl, but it is letting the Treasury do that and is in no rush to take the booze away. After the last year of no partying….the message is turn up the music. (Side note: my son, having had two jabs, is off to Miami for spring break. If the idea of lots of 20-22 year-olds dancing around the swimming pool is not a sign of a return to normal I don’t know what is!).

On Wall Street, the Dow Jones has slid 1% and the tech-heavy Nasdaq has fallen 0.5%, while the dollar is rising and Treasury yields are also heading higher again.

Chris Iggo, chief investment officer of core investments at AXA Investment Managers, has sent us his thoughts on bond and equity markets. He reckons bond yields will rise quite a bit higher. The yield, or effective interest rate, on the 10-year US Treasury is at 1.74%.

Equities are outperforming bonds, yields are rising, and the US curve is super-steepening. The Fed is doing a reasonable job of anchoring short-term interest rate expectations, but the longer end of the curve reflects the reflationary boom. It is making US fixed income attractive again. Yet the move up in yields is probably not over and few will be surprised now if and when the market crosses the 2% yield level. That is no disaster. The US economy is in fully party mode.

It is worth thinking of how high yields could go. One metric would be to think about where long-term inflation expectations will settle and where real yields will settle. Our view is that inflation break-evens at around 2.4% are consistent with the Fed’s average inflation target. Real yields have averaged 0% since the global financial crisis. Putting the two together would target 2.4% 10-year Treasury yields.

A second approach would be to look at the cyclical position... by looking at current yields relative to their 3-year average and plotted that against the ISM index of manufacturing activity. There is a good fit in terms of how they behave through the cycle and it suggests that the level of yields is still too low relative to where the economy is. This is not an econometric model, but it could be used as an argument to point to yields being closer to 3%. At any rate, it should not be surprising if yields move higher still – after all that is what forward markets are pricing.

Stock markets are sliding deeper into the red, with the UK’s FTSE 100 now down 1.2% at 6,699, a loss of nearly 80 points. Germany’s Dax and France’s CAC are both down 0.8% and Italy’s FTSE MiB has slid 0.7%.

Oil prices have also turned negative again after yesterday’s big sell-off, with Brent crude trading 0.55% lower at $62.90 a barrel and US crude down 0.3% at $59.80 a barrel. Fresh coronavirus lockdowns in Europe (in France, Poland and Italy) have dampened expectations of economic recovery, and more demand for oil.

Finland remains the world’s happiest country for the fourth year running, with people’s trust in each other and their government proving a key factor.

It’s the fourth straight trophy for the Nordic country in the World Happiness Report 2021 published on Friday by the United Nations Sustainable Development Solutions Network.

Care workers will be disappointed by the ruling, but for care home providers it comes as a huge relief.

Matt McDonald, employment partner at the law firm Shakespeare Martineau, said:

This ruling will be disappointing for any care worker who believes they should be paid minimum wage for the entirety of the time spent on ‘sleep-in’ shifts. The case has been in the pipeline for some time and if the Supreme Court had sided with Mrs Tomlinson-Blake, the shockwaves would have been felt throughout the care sector.

By contrast, care providers will be mightily relieved that their longstanding approach of paying a fixed rate for ‘sleep-in’ shifts has been confirmed by the Supreme Court as legally sound.

If the Supreme Court’s decision had gone the other way, the bills facing care providers for historic underpayments would have been substantial and, in some cases, devastating. Many simply couldn’t have afforded to pay and we would therefore seen a large number of providers teetering on the brink of financial ruin, putting further pressure on UK care standards.

Here is our story, from media editor Jim Waterson:

Reach, which also owns the Daily Express, Daily Star and hundreds of regional newspapers around the UK and Ireland, will inform three-quarters of its staff on Friday morning that they will no longer be expected to come to the office full time. Dozens of mid-sized towns will lose their remaining newspaper office, with staff having to commute to the nearest major city if they want to work at a company desk.

The company will instead maintain hub offices filled with meeting rooms in Belfast, Bristol, Birmingham, Dublin, Cardiff, Glasgow, Newcastle, Hull, Leeds, Liverpool, London, Manchester, Nottingham and Plymouth. This means journalists working on the group’s local titles in East Anglia will have to head to the London HQ as their nearest office.

Returning to the home working trend...

City A.M. reports that the newspaper publisher Reach, which owns the Mirror and Express as well as a number of regional titles, is planning to close its offices and make most of its employees permanent home workers.

The company will close its Lower Thames Street office in central London and reduce its office space in Canary Wharf from two floors to one.

Here is our full story on the Treasury reducing its stake in NatWest.

Taxpayers’ stake in NatWest has been reduced after the government sold £1.1bn of shares in the bank, which was bailed out during the financial crisis more than a decade ago, reports Mark Sweney.

The government’s stake in NatWest, formerly known as Royal Bank of Scotland, fell to 59.8% from 61.7% after it sold 591m shares back to the bank at 190.5p a share in an off-market deal authorised by the chancellor, Rishi Sunak, and managed by UK Government Investments (UKGI).

It marks the third selldown of taxpayer-owned shares since the government injected £45.8bn for an 82% stake in the banking group to bail it out at the height of the financial crisis in 2008.

IWG, the world’s biggest flexible workspace provider, has published new data that show there has been a shift to the suburbs and away from city centre offices, as businesses turn to home or “hybrid” working (split between home and the office) because of the pandemic.

At the moment, most office workers have been ordered to work from home, and it seems likely that they will continue to work two to three days a week from home, and the rest in the office. IWG says:

• Demand for office space in suburban areas is up 32% in the first three months of 2021
• Demand for office space in rural locations is up 20%
• Demand for city centre areas is down 11%

This change has been especially prevalent in London, with a host of towns around the M25 seeing significant increases in demand for office space. Uxbridge (175% increase), High Wycombe (52%) and Hayes (24%) are just some of the locations benefiting from the shift away from major urban areas. Over the same period the City of London has seen a 26% decline versus pre-Covid levels.

Mark Dixon, founder and chief executive of IWG said:

Across our customer base we are seeing firms taking steps towards a hybrid working model. While the pandemic has certainly had a dramatic effect, it’s merely accelerated a trend that’s been underway for several years.”

The past 12 months has shown that while businesses can largely operate effectively remotely, they are planning for a hybrid future. Companies are moving rapidly towards a hub and spoke model maintaining a central headquarters, but also empowering staff to access smaller co-working spaces, closer to their home and often accessible by foot or by bike.

In the UK alone during the last two years IWG has opened almost all its new centres in non-city centre environments, and today globally we are seeing enquiries and demand for suburban locations across our brands including Regus and Spaces exponentially increase.

Despite the improvement in consumer morale reported a bit earlier, people’s mental health has suffered hugely during the pandemic and lockdowns. The Institute for Fiscal Studies has published this analysis today.

Gareth Shaw, Head of Money at the consumer group Which?, said:

Our research found that some leaseholders face onerous clauses from developers, bad advice from lawyers and spiralling ground rents that effectively rendered their homes unsellable.

It’s good to see the regulator taking action against some of the biggest housebuilders to protect homeowners and sending a clear message that bad practices like these must be a thing of the past.

Here is our full story:

Howard Archer, chief economic advisor to the EY Item Club forecasting group, explains that the public finances normally see a surplus in January, as it is a key month for tax receipts. The February public finances also tend to benefit from higher tax receipts than most months as some the tax due in January arrives late.

January’s shortfall was revised lower to £3.1bn from the previously reported deficit of £8.8bn. Even so, this was the first January deficit for 10 years and the largest since records began.

Archer has looked at the detail of the February data.

VAT receipts were down 12.0% year-on-year. VAT receipts are currently being limited by the temporary VAT cut (from 20% to 5%) for the hospitality and leisure sectors as well as the closure of non-essential retailers.

Additionally, Stamp Duty receipts, which were down 4.5% year-on-year in February, have been reduced by the temporary raising of the threshold since July. However, the ONS reported that self-assessed income tax receipts were up 26.2% year-on-year in February 2021 while PAYE income tax was up 4.0% year-on-year. Corporation tax receipts rose 0.2% year-on-year.

Meanwhile, central government expenditure increased 25.1% year-on-year in December following government measures to support the economy, businesses and jobs in the face of the pandemic.

Should the pattern of the first 11 months of fiscal year 2020/21 continue, the budget deficit would come in around £318bn. It will likely ultimately come in higher than this as not only will the March shortfall be lifted by extra supportive measures and relatively limited economic activity due to the current restrictions on activity, but the ONS is yet to incorporate an estimate of the likely write-off of losses from the various government-backed COVID-19 loan schemes.

Nevertheless, the chancellor looks on course to at least meet the budget deficit of £354.6bn for 2020/21 set out by the OBR in the budget at the start of this month.

Thomas Pugh, UK economist at Capital Economics, is also fairly optimistic.

February’s public finances figures showed that borrowing is course to match the OBR’s 2020/21 forecast of £355bn. But if we are right in thinking the economic recovery will be faster and fuller than the OBR expects, borrowing will undershoot the OBR’s forecasts further ahead.

This would allow the chancellor to cancel some of the proposed tax hikes before the 2024 general election.

While the UK government borrowing figure for February was the highest on record (at £19.1bn), it was below City forecasts of £21bn.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, notes that tax receipts have continued to hold up relatively well, given the lockdown, registering only a 1.4% year-over-year decline. He also says that borrowing for the whole financial year could come in below the Office for Budget Responsibility’s forecast.

Admittedly, the picture is flattered a bit by the relatively high level of self-assessment income tax and capital gains tax receipts in February, which refer to income and gains clocked up in the 2019/20 financial year. Even excluding these tax streams, however, receipts were down a mere 2.6%, similar to January.

The ONS’ figures still do not include an estimate of future write-offs on virus-related loans, which will accrue to when the funds were first dispensed in this fiscal year. The OBR judges that the eventual cost to the exchequer will be £27.2bn.

Even after allowing for this discrepancy, however, the OBR’s full-year borrowing forecast of £354.6bn in the Budget—or £327.4bn excluding write-offs—looks a bit too high. Borrowing has totalled £285.9bn between April and February and will total £309.6bn in 2020/21 as a whole, if the year-over-year rise in borrowing in March matches the average uplift in the previous three months.

Other reasons to be cheerful: while remaining high, the debt-GDP ratio fell.

The ONS has spelled out the impact of the coronavirus crisis on the UK’s economy and public finances.

Central government tax and national insurance receipts in the 11 months to February fell by £36.8bn (or 5.7%) compared with the same period a year earlier, while government support for individuals and businesses during the pandemic contributed to an increase of £187.6bn (or 27.9%) in central government day-to-day spending.

The latest official forecasts, published by the Office for Budget Responsibility on 3 March, indicate that the £278.8bn borrowed by the public sector in the 11 months to February could reach £354.6bn by the end of March 2021.

European stock markets have opened lower.

• UK’s FTSE 100 down 80 points, or 1.2%, at 6,698
• Germany’s Dax down 0.6%
• France’s CAC down 0.4%
• Spain’s Ibex down 0.9%
• Italy’s FTSE MiB down 0.8%

The chancellor, Rishi Sunak, responded to the public finance figures.

Coronavirus has caused one of the largest economic shocks this country has ever faced, which is why we responded with our £352bn package of support to protect lives and livelihoods.

This was the fiscally responsible thing to do and the best way to support the public finances in the medium-term.

But I have always said that we should look to return the public finances to a more sustainable path once the economy has recovered and at the budget I set out how we will begin to do just that, providing families and businesses with certainty.