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The coronavirus crisis: first steps to lockdown relaxation and the Bank warns of major GDP fall in 2020

Date: 11th May 2020

The coronavirus crisis: first steps to lockdown relaxation and the Bank warns of major GDP fall in 2020
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses recent key developments relating to the coronavirus crisis:
    • The Prime Minister’s speech on 10 May outlined the first conditional steps towards lockdown relaxation. Specifically, he said those workers not able to work at home, “should actively be encouraged to go to work”. He will be setting out more details of his plans in Parliament on 11 May.
    • The Bank of England’s MPC left monetary policy unchanged at their May meeting, with a bias towards further easing.
    • The Bank released its “illustrative scenario”, which suggested GDP would fall 14% in 2020, but recover by 15% in 2021. A fall of 3% in 2020Q1 is followed by a fall of 25% in 2020Q2, but GDP recovers relatively rapidly in 2020Q3, and rises further in 2020Q4 and into 2021.
    • The Bank projected a surge in the unemployment rate to around 9% in 2020Q2, before easing gradually back. The unemployment rate is expected to average 8% in 2020, edging down to 7% in 2021 and declining to 4% in 2021.
    Survey and data update:
    • The ONS’s latest Business Impact of Coronavirus Survey (BICS) confirmed nearly quarter of respondents had temporarily closed or paused trading, while three-quarters continued to trade. Concerning the workforce, 28% of the workforce had been furloughed under the Coronavirus Job Retention Scheme (CJRS), of which the accommodation & food service activities sector had the highest proportion, with 73%. Less than 1% of the workforce had been made redundant so far.
    • The Markit PMIs for services and construction, as well as manufacturing, were dire in April, pointing to a sharp contraction in output in 2020Q2.
    • The SMMT reported that new car registrations collapsed in April, they were down 97% (YOY).
    • According to the Halifax, house prices fell 0.6% (MOM) in April, to be 2.7% higher (YOY).
    International developments:
    • The European Commission’s May forecast was exceptionally pessimistic. Eurozone GDP is projected to fall by 7.7% in 2020, though partly recover (by 6.3%) in 2021. Within the Eurozone, the economies in Greece, Italy and Spain are projected to contract by around 9½% this year, and in France by over 8%, whilst in Germany and the Netherlands GDP may fall by 6½%.
    • In the US, non-farm payrolls fell by 20.5mn, and the unemployment rate rose to 14.7%, in April.
    Ruth Lea said, “As the Prime Minister outlines the first steps to relaxing the lockdown, the scale of the economic damage continues to emerge. The Bank warned in its “illustrative scenario” of a possible fall in GDP of 14% in 2020, with the unemployment rising to 9%. Next week (13 May) sees the release of the first estimate for GDP for 2020Q1, with expectations of a fall of about 3-5% (QOQ). But this fall will surely be dwarfed by the contraction in 2020Q2. Indeed the Bank suggests the decline could be 25% (QOQ).”

For full story:

Press enquiries:

Arbuthnot Banking Group PLC:

Ruth Lea, Economic Adviser
07800 608 674, 020 8346 3482
Follow Ruth on Twitter @RuthLeaEcon

Sam Cartwright
020 7379 4415
Jais Mehaji
020 7379 5151
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