Time for a recap

Growth in the UK economy has all but fizzled out. GDP expanded by just 0.4% in October, the weakest in six months, with Covid-19 restrictions hitting the services sector hard.

Economists said growth had dropped to a “snail’s pace”, and that the UK faced a fraught few months after coming to a ‘juddering halt’ this quarter.

Economics thinktank NIESR estimates the UK will probably shrink by 1.5% in the last three months of 2020, with a November slump followed by a recovery in December.

Anxiety over a no-deal Brexit has pushed the pound down by over one cent today.

It subsided back back below $1.33 in the last few minutes after Boris Johnson said there was a “strong possibility” of no trade deal being reached in time.

Shares in housebuilders and banks have also dropped, after the UK and EU set Sunday as their latest (and last?) deadline.

But the UK has reached a free trade deal with Singapore, that should largely replicate an existing EU deal.

The European Central Bank has boosted its pandemic stimulus bond-buying scheme by €500bn. The move is a response to the second wave of Covid-19, which forced the ECB to cut its already weak growth and inflation forecasts.

ECB president Christine Lagarde said expending the PEPP programme by nine months would buy time for the eurozone to achieve herd immunity against Covid-19, by the end of 2021.

In the US, unemployment claims have jumped sharply as the escalating pandemic forced states to impose tighter restrictions.

But the oil price has jumped to a new nine-month high, pushing Brent over $50 per barrel.

In other news....

Britain’s largest banks will be allowed to restart limited dividend payments and banker bonuses in the new year, after regulators determined that lenders were strong enough to weather the remainder of the Covid pandemic.

Shares in Airbnb looks set to more than double when the company starts trading on the Nasdaq stock exchange on Thursday at a price that could value the short-term rentals company at close to $100bn.

Honda’s factory in Swindon will not restart production until Monday at the earliest after the Japanese carmaker was forced to shut it down because of significant delays at UK ports.

Tui, Europe’s largest holiday company, has sunk to a €3bn (£2.7bn) full-year loss, and said it does not expect bookings to return to normal until 2022.

Goodnight. GW

In the City, shares in Britain’s housebuilders and banks have fallen sharply today, amid fears that the UK and EU won’t reach a free trade deal.

UK-focused companies such construction firms Persimmon, Barratt Development and Taylor Wimpey were among the top fallers on the FTSE 100.

Lloyds Bank and Natwest also fell, after a day in which the EU outlined a proposal to keep planes, coaches and freight operating across Europe for six months after a no-deal exit.

Retailers Next and Kingfisher also dropped, as did online grocer Ocado - which warned today that it couldn’t stockpile fresh food in case of disruption next month.

But oil companies BP and Royal Dutch Shell rallied, following the jump in the oil price.

Other multinationals (who benefit from a weaker pound) also gained ground, lifting the FTSE 100 up by 35 points to 6599.

The pound is also down sharply, losing a cent against the US dollar to $1.33 tonight, after UK foreign secretary, Dominic Raab, said the talks were unlikely to be extended beyond Sunday’s deadline without substantial concessions from Brussels.

Just in. The Bank of England is giving UK banks the green light to start paying dividends again, but with some ‘guardrails’ to avoid reckless payouts.

The Bank’s Prudential Regulation Authority has decided that it does not need to extend the “exceptional and precautionary action taken in March”, when it pressured banks to suspend dividends for 2020 and cancel 2019’s payouts.

The PRA says that the banks remain “well capitalised” and should be able to keep supporting the real economy, so there’s no need to extend its ‘request’.

But, the PRA also wants banks to be ‘prudent’, in case economic conditions worsen....

Any distributions should be prudent, reflecting the still elevated levels of economic uncertainty and the need for banks to continue to support households and businesses through the continuing economic disruption, even in the event that this disruption is more prolonged and severe than currently anticipated.

As a stepping stone back towards its standard approach to capital-setting and shareholder distributions the PRA therefore asks boards, when making their decisions for 2020 distributions, to operate within a framework of temporary guardrails.

That framework is meant to ensure that a bank can’t pay out too much, leaving it vulnerable or impeding its ability to lend.

More details here.

Airbnb is about to make an extremely dramatic debut on the US stock market.

The short-term rental business is becoming the latest tech firm to float today, in an initial public offering that values the company at $47bn, or $68 per share.

But the shares are on track to more than double when trading begins -- as investors clamour for a piece of the company.

All the more remarkable when you consider the impact of the pandemic on its business, which led to losses of nearly $700m on revenue of $2.5bn in the first 9 months of this year.

My colleague Dominic Rushe explains:

Founded in 2008 after co-founders Joe Gebbia, Brian Chesky and Nathan Blecharczyk came up with the idea of renting air mattresses in their San Francisco apartments, Airbnb now has more than 7m short-term listings worldwide and at $47bn would be valued more highly than Marriott, the largest hotel operator.

The sale will add billions to the fortunes of its founders and allow staff to sell up to 15% of their shares after the listing, instead of waiting for the usual lock-up period, creating more millionaires.

Airbnb has proved a controversial company, and is under fire from residents and local politicians in cities from Barcelona to New Orleans over its impact on local communities. In New Orleans, for example, local residents have complained about soaring rentals and lack of housing as investors have snapped up properties to rent on a short-term basis.

The number of Airbnbs in New Orleans rose from 1,905 to 6,508 between 2015 and December 2018, according to the watchdog website Inside Airbnb...

Yesterday, shares in US meal delivery company DoorDash shares jumped by 86% on its first day of trading.

Over in America, the number of people filing new claims for unemployment benefits has jumped, as the Covid-19 pandemic continues to hurt the US economy.

Around 853,000 new ‘initial claims’ were filed last week, sharply up on the 716,000 claims received the previous week (when Thanksgiving disrupted things).

This surge shows that the record number of coronavirus infections, leading to tighter restrictions in some states, is hurting the economy. Especially as Congress hasn’t agreed a new stimulus package.

The number of self-employed workers, freelancers and ‘gig economy’ staff seeking help from the Pandemic Unemployment Assistance also jumped sharply, to 427,609 from 288,234 a week earlier.

Economists and investors are concerned:

Back in the markets, the oil price has jumped to a new nine-month high.

Brent crude has surged over 3.5% today to $50.60 per barrel, the highest level since the start of March.

Finally, asked about the climate emergency, Christine Lagarde said the ECB should be mindful of this issue ‘in everything that we do.’

We have to be mindful of climate change impact in terms of risks, and in terms of delivering on the inflation mandate, the ECB president says.

She adds that the ECB’s strategic review will debate whether or not the “direct and indirect impact of climate change” has a bearing on price stability, Lagarde explains.

She thinks it does - others may have different views, but they should be debated.

We have to bear in mind those risks and the direct and indirect impacts that it has on the natural interest rate, that it has on the price stability objectives and the impact on inflation, for instance, of major weather circumstances or draught, or a carbon tax if and when it comes

We have great debates ahead and they will come.

The European Central Bank extended its stimulus programme today because it believes the eurozone will achieve the herd immunity needed for the economy to operate normally again by the end of 2021.

Asked why the governing council decided today to extend the PEPP programme by nine months (until March 2022), president Christine Lagarde explains that the ECB is attentive to health literature.

She cites the forecasts made by scientists about immunity, vaccinations and the rollout of vaccines.

Lagarde says that the ECB has “good reasons” to believe that herd immunity should be achieved by the end of next year. That will allowing social distancing rules and other restrictions that are hurting the service sector to be lifted.

She says:

We have good reasons to believe that by the end of 2021, with uncertainty associated with it, we will have reached sufficient herd immunity to hope that by the end of 2021 the economy will begin to function under more normal circumstances and that in particular the service sector will not be impaired by a lot of these social distancing and restrictions that apply to it at the moment and do not facilitate the growth of the sector.

That takes you into the beginning of 2022 where the economy really begins to recovery very seriously, the recovery takes root, and we are essentially two years after the beginning of Covid.

Lagarde also says that the ECB had expected a second wave of Covid-19, but the depth, duration and containment measures are deeper than expected.

The ECB also warns that uncertainty remains high -- including over the timing of Covid-19 vaccines that could end the crisis.

In a statement outlining today’s moves, it says:

The monetary policy measures taken today will contribute to preserving favourable financing conditions over the pandemic period, thereby supporting the flow of credit to all sectors of the economy, underpinning economic activity and safeguarding medium-term price stability.

At the same time, uncertainty remains high, including with regard to the dynamics of the pandemic and the timing of vaccine roll-outs. We will also continue to monitor developments in the exchange rate with regard to their possible implications for the medium-term inflation outlook.

The Governing Council therefore continues to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner, in line with its commitment to symmetry.

As well as boosting its pandemic stimulus package by €500bn, the ECB has taken several other steps to support the eurozone economy through the crisis.

That includes providing even more extra cheap funding for banks, by:

• extending its longer-term refinancing operations (TLTRO III) by another 12 months, to June 2022 -- this will give banks longer access to ultra-cheap credit from the ECB.
  
  
• launching four additional pandemic emergency longer-term refinancing operations (PELTROs) in 2021, which will “continue to provide an effective liquidity backstop”.

The ECB is also planning to keep running its quantitative easing, or asset purchase programme (APP) at a monthly pace of €20bn for “as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates.”

The European Central Bank has increased the size of its stimulus programme, and extended it by nine months.

It’s a new attempt to protect the eurozone’s economy from the damage caused by Covid-19, in view of “the economic fallout from the resurgence of the pandemic”.

The ECB’s governing council has decided to “increase the envelope” of its pandemic emergency purchase programme (PEPP) by €500bn.

The move will expand its flagship pandemic-crisis-fighting tool up to €1,850bn -- as the ECB tries to stimulate growth and inflation by buying government bonds from commercial banks.

The eurozone’s central bank has also extended the horizon for net purchases under the PEPP to at least the end of March 2022, from June next year, adding that:

In any case, the Governing Council will conduct net purchases until it judges that the coronavirus crisis phase is over.

The ECB has also left eurozone interest rates at their current record lows, meaning its main refinancing rate stays at 0.00%, and commercial banks are charged negative interest rates for leaving cash with the ECB.

Brexit fears are pulling the pound lower, on disappointment that the UK and EU are still “far apart” on a deal.

Sterling has now dropped by around 1% to $1.327 against the US dollar (from around $1.34 during last night’s dinner in Brussels).

That’s its lowest point since Monday, when the pound tumbled on reports that the UK could walk away from talks.

Sterling is also weaker against the euro, down a eurocent at €1.098.

The selloff comes as EU leaders gather in Brussels for a summit meeting, where Von der Leyen told reporters that:

I had a very long conversation yesterday night with Prime Minister Boris Johnson. It was a good conversation. But it is difficult.

We are willing to grant access to the single market to our British friends. It’s the biggest largest single market in the world. But the conditions have to be fair. They have to be fair for our workers and for our companies, and this fine balance of fairness has not been achieved so far.

Our negotiators are still working. And we will take a decision on Sunday.

Charles Michel, the European council president, said EU leaders would “defend European interests”:

On Brexit, negotiations are still ongoing. We trust the commission - we will have a short debrief from the commission. We will not have a long debate on Brexit and we will defend our European interests.

The congestion crisis at UK ports has forced carmaker Honda to suspend production at its Swindon factory until at least Monday.

With disruption at the UK’s largest container port, Felixstowe, spreading to other ports, delays are rising -- which creates serious problems for manufacturers’ “just-in-time” supply chains.

Jasper Jolly explains:

The Swindon plant, which produces the Civic car, shut down on Monday night because of delays in receiving spare parts from east Asia. Honda is now considering flying in parts, as Bentley and Jaguar Land Rover have both previously weighed up.

A spokesman said: “Honda UK has confirmed to employees that production will not run on Thursday 10 or Friday 11 December due to transport-related parts delays. The situation is currently being monitored with a view to restart production on Monday 14 December.”

In the financial markets, the pound has dropped further against the US dollar and the euro as fears of a no-deal Brexit cliff-edge mount.

Sterling has dropped by nearly a cent to around $1.33, and is down almost a eurocent at €1.099, after last night’s turbot-charged dinner between Boris Johnson and Ursula von der Leyen resulted in a new Sunday deadline.

Russ Mould, investment director at AJ Bell. says:

“This reaction suggests the market is losing confidence in Boris Johnson being able to strike a deal and so currencies and equities are likely to be volatile for both today and tomorrow in anticipation of this weekend’s conclusion to the drawn-out negotiations.

So far today, UK foreign secretary Dominic Raab has said the EU needs to make ‘substantial movement’ on the outstanding issues (fisheries, and level playing field commitments).

The EU, though, has just proposed several contingency measures in case of a no-deal Brexit, covering air connectivity, aviation safety, road connectivity and fisheries.

Von der Leyen warns:

There is no guarantee that if and when an agreement is found it can enter into force on time. We have to be prepared including for not having a deal in place on 1 January.

Our Politics Live blog has all the details:

The UK faces a “precarious” economic outlook as the pandemic hits confidence and Brexit trade deal talks continue, warns Charles Hepworth, investment director at GAM Investments:

He says October’s slowdown shows the impact of lockdown measures - which could see the UK economy shrink again this quarter:

As lockdown restrictions resurfaced across much of the UK in the fourth quarter, the effects have started to show already in October’s monthly GDP print, which posted a 0.4% advance against the 1.1% advance we saw in September. The general expectation is for a Q4 contraction in GDP as a whole as the economy continues to deflate from the record June growth rate as we bounced out of the first wave of the pandemic.

“This monthly print shows the continual damaging effects of the pandemic, sapping any consumer and business confidence and now the UK economy is nearly 8% smaller than it was in January this year. As talks continue between Prime Minister Boris Johnson and the EU President von der Leyen, with the deadline to reach an agreement further extended to this Sunday, the outlook for the UK economy looks precarious.

The Prime Minister was perhaps too characteristically upbeat when he said just a month ago that the next few months are going to be ‘bumpy’.”

Economic growth across the UK slowed to a ‘snail’s pace’ in October, says Ruth Gregory, senior UK Economist at Capital Economics.

The 0.4% m/m rise in real GDP was a far cry from the 2.2% m/m and 1.1% m/m gains seen in August and September respectively and suggests that the recovery had already burnt out even before November’s lockdown was imposed.

That left the economy still 7.9% smaller than before the crisis, a bigger shortfall than during the whole of the Global Financial Crisis.

She also fears that the economy faces a “difficult few months”, and probably shrank vey sharply during last month’s English lockdown.

The second lockdown probably caused the economy to contract sharply in November, perhaps by up to 8% m/m, and the strict COVID-19 regional tier system put in place in December will limit the rebound in activity in the coming months.

But more encouragingly, Gregory predicts the economy could reach its pre-pandemic level in early 2022, thanks to a “vaccine bounce” in 2021.

Britain’s economic recovery from the first wave of the Covid-19 had almost come to a standstill as fresh restrictions affecting the hospitality sector were imposed in the autumn, our economics editor Larry Elliott writes:

Figures from the Office for National Statistics showed that national output – or gross domestic product – rose by 0.4% in October.

Although it was the sixth successive monthly increase since May, the ONS said activity remained almost 8% below its pre-crisis level.

The economy is expected to contract in November as a result of the four-week lockdown in England but the ONS said there were already signs of the tightening of restrictions having an impact on the service sector in October.

A breakdown of GDP into its three main sectors showed production rising by 1.3% in October, construction up by 1% but services – which account for around 80% of GDP – increasing by just 0.2%.

Within services, the ONS said tougher social distancing rules, which included a firebreak in Wales and the tiering system in England, meant output of accommodation and food retailing fell by more than 14%.

ONS figures show a marked deceleration in growth since the summer. The economy expanded by 9.1% in June, 6.3% in July, 2.2% in August and 1.1% in September, before a further slowdown in October....

Here’s the full story:

The ONS has also looked at the overall impact of the Covid-19 pandemic on the UK economy in October. Here are the key points:

• Monthly gross domestic product (GDP) rose by 0.4% during October 2020, but was 7.9% below February 2020 levels.
  
  
• October 2020 saw the sixth consecutive month of growth, but the rate of recovery has slowed each month since the largest rise of 9.1% in June 2020.
  
  
• Across services, the monthly growth was driven by health, wholesale, retail and motor trades, and education, while accommodation and food and beverage service activities declined.
  
  
• Within manufacturing there was widespread growth, led by a rise of 6.8% in motor vehicle production.
  
  
• Monthly construction output growth slowed to 1.0% in October 2020, the sixth consecutive month of growth but the lowest rise in that time, with the level of construction output in October 2020 still 6.4% below the February 2020 level.

Yael Selfin, chief economist at KPMG UK, predicts the UK economy will shrink in the October-December quarter - and suffer a more severe downturn than major rivals for 2020.

“Overall, the UK economy could shrink by 2% in the last quarter of 2020, taking the contraction for the year as a whole to 11.2%, one of the worst among developed economies.

She also warns that the recovery will be much weaker if the UK and EU can’t agree a free trade deal:

“GDP could rise by 6.1% next year in the event we get a Brexit deal, while growth could prove lower at 3.3% if there is no deal with a small recession at the start of the year.

“October data shows significant slowdown in activity ahead of the second lockdown in November. Hospitality services were particularly hit after a summer reprieve, with prospects expected to remain gloomy until later next year when restrictions are likely lifted fully.”

The health and social work sector made a strong positive contribution to growth in October, as did manufacturing.

But accommodation and food services shrank dramatically as Covid-19 restrictions were imposed.

As this chart shows, many other parts of the economy did keep growing, though.

The ONS says:

Monthly GDP in October 2020 increased by 0.4%, where manufacturing had the largest contribution, as manufacturing of transport equipment saw increased demand.

Health also had a large positive contribution in October as there was an increase in the volume of activity. Accommodation and food service activities acted as a large drag on growth in October as tightening coronavirus measures had an adverse impact on trade and a subsequent lack of demand.

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

Britain’s economy has slowed sharply as the rise in Covid-19 infections and tiered restrictions imposed across the country hit activity.

UK GDP rose by just 0.4% in October, new figures from the Office for National Statistics show.

That’s the weakest monthly expansion since the UK returned to growth in May after the first Covid-19 lockdown.

It shows that the economy was already weakening before last month’s English lockdown. It also means the UK economy is still 7.9% lower than the levels seen in February 2020, before the pandemic struck the country.

The Office for National Statistics says:

With a backdrop of further national measures being introduced in response to the coronavirus pandemic, monthly GDP grew by 0.4% in October 2020. This is the sixth consecutive monthly increase following a record fall of 19.5% in April 2020.

October 2020 GDP is now 23.4% higher than its April 2020 low. However, it remains 7.9% below the levels seen in February 2020, before the full impact of the coronavirus pandemic.

Covid-19 infections rose sharply through October, as the second wave of the virus hit the UK hard.

During October, Boris Johnson announced the three-tier system for England which saw millions of households - particularly in the North - living under tougher restrictions. Scotland introduced its own restrictions - including a ban on drinking indoors at pubs and restaurants - while Wales went into a firebreak lockdown.

Also coming up today

The pound may come under pressure after Boris Johnson and Ursula Von Der Leyen agreed to extend the Brexit trade deal talks until Sunday.

No breakthrough came during their dinner in Brussels, with Von der Leyen tweeted diplomatically that “We had a lively and interesting discussion on the state of play on outstanding issues”

A senior No 10 source said:

“The prime minister and Von der Leyen had a frank discussion about the significant obstacles which remain in the negotiations.

“Very large gaps remain between the two sides and it is still unclear whether these can be bridged.”

Sterling is currently down around half a cent against the US dollar at $1.335, and half a eurocent at €1.105.

In the eurozone, the European Central Bank is expected to unveil yet another stimulus package later today, to support Europe’s struggling economy through the winter.

The agenda

• 7am GMT: UK GDP and trade balance for October
• 12.45pm GMT: European Central Bank interest rate decision
• 1.30pm GMT: ECB press conference
• 1.30pm GMT: US weekly jobless figures