Graeme Wearden 

Boots to cut 4,000 jobs as John Lewis to shut eight stores, putting 1,300 jobs at risk – as it happened

Grim day in UK retail as Boots announces plans to cut 4,000 jobs and John Lewis Partnership shuts eight stores
  
  

A Boots in London.
A Boots in London. Photograph: Hollie Adams/Getty Images

A late newsflash: Ireland’s finance minister Paschal Donohoe, has been elected as president of the eurogroup -- the gathering of eurozone finance chiefs.

He’s just beaten Spain’s Nadia Calvino to take on the role [Luxembourg finance minister Pierre Gramegna dropped out after earlier voting today].

It’s an important role - Donohoe must start by helping to steer the eurozone towards agreeing a comprehensive recovery package.

And that really is all for tonight...

Full story: Bleak day for the high street

And finally, here’s our latest news story on today’s job losses:

Boots and John Lewis have announced plans to cut 5,300 jobs and close stores on another bleak day for the UK high street.

Boots is cutting 4,000 jobs – or 7% of its workforce – by closing 48 opticians outlets and reducing staff at its head office in Nottingham as well as some management and customer service roles in stores.

The company, which has 2,465 stores, said it was accelerating a restructuring plan after sales at its main Boots outlets dived 72% and sales at Boots Opticians slumped 48% during the coronavirus lockdown on the high street.

John Lewis also announced on Thursday that it is planning to permanently close eight of its 50 stores, including full department stores in Birmingham and Watford, with the likely loss of 1,300 jobs.

That’s all for today. Thanks for reading and commenting. GW

Today’s flurry of job cuts came as Britain’s leading tax and spending thinktank has criticised the flagship policies in Rishi Sunak’s £30bn summer statement.

The Institute for Fiscal Studies said the key measures were badly timed, poorly targeted and likely to do little to stop unemployment from rising.

My colleague Richard Partington explains:

The IFS said most of the £9.4bn allocated for the government’s £1,000 job retention bonus scheme – to incentivise employers to take back furloughed staff – would be spent on jobs that were already safe.

It also said tax increases would be required from 2022 onwards to pay for the government’s Covid-19 response, while warning that the government’s budget deficit – the gap between state expenditure and tax revenue – would reach £350bn this year, the highest level in peacetime for 300 years.

Announced as the focal point of Sunak’s speech on Wednesday, the £1,000 bonus plan is designed to ease the transition from the more generous furlough scheme, which pays 80% of workers’ wages up to £2,500 per month. As many as 9.4m jobs have been furloughed, at a cost to the exchequer so far of £27.4bn, with the government hoping that the companies will take back workers at £1,000 a head rather than lay them off when the job retention programme ends on 31 October.

The UK government took another step towards reopening the economy this afternoon, announcing plans for beauty salons, spas, gyms, pools and leisure centres to restart.

However, there will be restriction on how these places operate, including reduced class sizes and booking systems.

Culture secretary Oliver Dowden has also said musicians and artists can perform live outside from this weekend - an “important milestone”.

Our main UK coronavirus liveblog has all the details:

Updated

Afternoon summary: UK suffers job loss woes

Time for a recap:

Thousands more jobs are being lost across the UK as businesses reel from the impact of Covid-19, prompting criticism that the government isn’t doing enough to support the economy.

High street bellwether John Lewis is shuttering eight stores, including full-size department stores in Watford and Birmingham. Four ‘At Home’ shops at Croyden, Newbury, Swindon and Tamworth are closing permanently, and small outlets at Heathrow and St Pancras as also being axed. In total, 1,300 jobs are at risk.

John Lewis blamed the move towards online shopping, which has accelerated as people have obeyed the lockdown and worked from home

Chair Sharon White said it was necessary to close these sites, which had all been struggling before the pandemic. Another 42 stores are being reopened.

But the move was heavily criticised by former managing director Andy Street, now mayor of the West Midlands. He claimed shutting the Birmingham store would be a “terrible mistake”.

Around 4,000 staff are also being let go at high street chemist Boots. Its owner, Walgreens, has decided to cut staff and close scores of Opticians outlets, after suffering a dramatic slump in takings.

Visits to Boots stores tumbled 85% in April, with customers keeping away even though such essential shops remained open.

Sebastian James, the managing director of Boots UK, said the cuts would create “a stronger and more modern Boots”

“We recognise that today’s proposals will be very difficult for the remarkable people who make up the heart of our business, and we will do everything in our power to provide the fullest support during this time.”

Boris Johnson’s spokesman says the government will do everything it can to help.

But...opposition MPs have blamed the government.

Lucy Powell MP, Labour’s Shadow Minister for Business and Consumers, said Rishi Sunak should have announced more focused measures yesterday, rather than meal deal vouchers and a blanket £1,000 bonus for taking furloughed staff back:

“The Chancellor’s statement was a missed opportunity to protect jobs with properly targeted support for the businesses and people that need it.

“Ministers must acknowledge that different parts of our economy face very different challenges in the months ahead and come forward with a real plan to protect jobs in sectors fully closed or only partially reopened, and develop an urgent programme to boost retailers and save our high streets from becoming ghost towns.”

Hundreds of jobs are also being cut at Wales Celtic Manor Resort, with billionaire owner Sir Terry Matthews criticised for not providing more support to staff.

Rolls-Royce is also pressing on with a job cuts programme - 2,000 staff are expected to take voluntary severance by August. It has burned through £3bn of cash since the pandemic began, as its lucrative engine servicing business has dried up.

The UK boss of Burger King has hinted that one in 10 of its outlets could close, costing 1,600 jobs.

US companies are also struggling, with Harley-Davidson announcing 700 job cuts....and new data showing that more than 1.3 million Americans filed new claims for unemployment support last week.

Anxiety over the global economy has also hit stocks in Europe and the US today. The blue-chip FTSE 100 lost 1.7% today, and just closed at its lowest level since late May.

Updated

UK firms face barriers after Brexit, warns EC

As if Covid-19 wasn’t trouble enough, British companies have been warned to expect new barriers selling their products in the European Union.

UK nationals will also face “thorough checks” when travelling to the continent even if there is a Brexit trade deal, the European commission has said.

In a document warning businesses to prepare for the end of the Brexit transition period, the EU executive said many changes were “inevitable” even if the two sides reached an agreement by the end of the year.

EU chief negotiator Michel Barnier released the document, after three days of talks with his counterpart David Frost in London, where he said “significant divergences” remained between the two sides.

The 35-page document contained a thinly-veiled criticism of the UK government’s decision not to opt for a one or two-year extension of the Brexit transition period.

It says:

The choices made by the United Kingdom’s government on the future relationship and on not extending the transition period mean that these inevitable disruptions will occur as of 1 January 2021 and risk compounding the pressure that businesses are already under due to the COVID-19 outbreak.

It also underscores that Brussels has no intention of phasing in border controls, an approach favoured by the British government. From 1 January 2021, customs officers in EU member states are expected to carry out full controls, which are “likely to lead to increased administrative burdens for businesses and longer delivery times in logistical supply chains,” the commission said. These controls will apply even if the EU and UK are successful in agreeing a trade deal that sets tariffs at zero, with no limits on quantities of exports and imports.

As Barnier has long trailed, British financial firms in the City of London will lose the “passports” that allow them to sell services in the rest of the union.

As well as losing their right to live, work and travel freely in the 27-country zone, British nationals will also face “thorough checks” at the border and cannot stay for more than 90 days in any 180-day period [Update: unless they have a visa, as a reader kindly points out].

Travellers will no longer be assured protection under EU passenger rights law that guarantees some compensation, nor will they have sure access to reduced roaming rates, while cats, dogs and other domestic animals will be stripped of the EU pet passport.

Updated

Anxiety over the economic pain of the Covid-19 pandemic is also hitting global stock markets.

A burst of selling on Wall Street has triggered losses in Europe, with the FTSE 100 down 98 points or 1.6% in late trading.

Traders are pointing to the latest surge in Covid-19 cases in America:

Travel companies and retailers, who suffer badly from lockdowns and physical distancing restrictions are among the fallers.

CNBC explains:

Shares of companies that would benefit from the economy reopening struggled. United Airlines, Delta and American all fell more than 4%. Carnival Corp dropped 3.7% and Royal Caribbean slid 5.3%. Kohl’s declined by 5.8%.

Even Harley-Davidson can’t escape the shadow of job cuts.

The motorcycle maker has just announced plans to cut 700 positions worldwide, as part of an overhaul to create a “leaner, more nimble organization”. That’s about 14% of its workforce, Marketwatch estimates.

Company share prices have a nasty habit of rising when job cuts are announced - but not today.

Walgreens shares have tumbled almost 9% in New York, after it announced it was cutting 4,000 UK staff after suffering a slump in sales.

CNN says the problems in the UK have highlighted the economic cost of the pandemic:

Although the layoffs make up 7% of its Boots workforce, it’s a tiny fraction of the 440,000 Walgreens employees worldwide. Still, it’s a sign of the financial challenges Walgreens faces during the Covid-19 pandemic.Walgreens announced the layoffs Thursday alongside downbeat quarterly results.

Adjusted earnings fell more than 43% -- worse than analysts expected -- and the company posted an operating loss of $1.6 billion.

Updated

In another blow, hundreds of jobs are being cut at Wales’s Celtic Manor.

The Newport-based company, which hosted golf’s Ryder Cup in 2010 and the 2014 Nato Conference, told staff today that around 450 of its 995 posts are to be made redundant.

It blamed the “catastrophic effect” of the coronavirus pandemic on tourism, saying (via Wales Online):

“It is clear the Covid-19 crisis will continue to have a catastrophic effect on the global economy, our nation and the travel, tourism and events industries for many months to come, and the Celtic Collection must reshape and resize its business to ensure that it is fit for the future.

“With drastically reduced occupancies and revenues, its current financial model is not sustainable.

“Staff whose positions are at risk of redundancy have been sent letters advising them of the process.”

As well as one of the UK’s top hotels, the Celtic Manor Resort includes an international conference centre, and several golf courses.

It was built by Welsh-Canadian business magnate Sir Terry Matthews, who built his fortune though telecoms and has ploughed a lot of it into the Newport site.

Plaid Cymru Senedd Member for South Wales East Delyth Jewell has called on Matthews to use his “amble means” to keep all staff employed until the economy has recovered.

The site shut down in the pandemic, but is due to reopen next week.

Updated

Lucy Powell MP, Labour’s Shadow Minister for Business and Consumers, says retailers such as John Lewis and Boots need more targeted support from the government:

“This is deeply worrying news for staff at John Lewis and Boots and the travel hubs and town centres these stores are in. These announcements underline the dangers facing our high street, as many businesses struggle to survive through the Covid-19 crisis and the necessary public health measures which limit capacity and demand.

“The Chancellor’s statement was a missed opportunity to protect jobs with properly targeted support for the businesses and people that need it.

“Ministers must acknowledge that different parts of our economy face very different challenges in the months ahead and come forward with a real plan to protect jobs in sectors fully closed or only partially reopened, and develop an urgent programme to boost retailers and save our high streets from becoming ghost towns.”

Andy Street to fight for John Lewis Birmingham store

West Midlands mayor Andy Street, the former managing director of John Lewis, says the company is wrong to shut the Birmingham department store (which he opened five years ago).

Street says John Lewis’s failure to make a success of the store is “extremely disappointing”.

He believes it can still be a success, and has pledged to make the case for keeping the store open, saying:

At this stage the closure is only a proposal, and one I believe risks being a terrible mistake. Therefore I will be making the case for why the company should not give up this tremendous opportunity in Birmingham.

However, John Lewis said this morning that the eight stores being shut were all struggling before the Covid-19 pandemic, so it may not see the same opportunity as Street....

Boris Johnson’s spokesman has told journalists in Westminster that the government will help John Lewis and Boots workers “in any way we can”.

But... chancellor Rishi Sunak’s new £30bn mini-budget package is already meant to be providing support. Those measures, including a £1,000 bonus for taking back furloughed staff, didn’t prompt a last-minute change of heart at either company.

Labour MP Bill Esterson points out that manufacturing is also struggling.

As covered earlier, 2,000 Rolls-Royce staff are expected to take voluntary redundancy or early retirement by August, following the slump in air travel.

The scale of the job cuts being imposed at Boots and John Lewis shows that Covid-19 is still battering the UK high street, says the FT’s John Eley:

John Lewis’s decision to shut two full-size department stores in large centres — the Intu complex in Watford and the Grand Central development above Birmingham’s New Street station — is likely to send shockwaves through the retail industry.

The 136,000 square foot Birmingham store opened in 2015 as part of an ambitious redevelopment of the city centre.

While most of Boots’ stores remained open during the UK’s 12-week lockdown, the company still reported much lower shopper numbers and refused to pay rent to many of its larger landlords while it renegotiated lease terms.

More than 100 of its larger stores in city centre, station and airport locations were closed, along with most of the Boots Opticians practices, while beauty and fragrance counters, which are major revenue drivers, were unable to operate.

Full story: Boots to cut 4,000 jobs

Boot’s jobs cuts are likely to hit its Support Office in Nottingham, which covers some 279 acres and dates back to 1929.

Deputy and assistant managers, and beauty and customer advisers in stores are also at risk, according to the Evening Standard. Plus, of course, the staff who work at the 48 Boots Opticians outlets which will close.

Sebastian James, the managing director of Boots UK, says:

“The proposals announced today are decisive actions to accelerate our transformation plan, allow Boots to continue its vital role as part of the UK health system, and ensure profitable long-term growth. In doing this, we are building a stronger and more modern Boots for our customers, patients and colleagues.

“We recognise that today’s proposals will be very difficult for the remarkable people who make up the heart of our business, and we will do everything in our power to provide the fullest support during this time.”

Over in the US, jobs are still being lost at a scary rate too.

The latest ‘initial claims’ report, just released, shows that 1,314,000 Americans filed new claims for unemployment support last week.

That’s down from 1.41m the previous week, but still alarmingly high - the 16th month running in which at least one million people sought fresh help. It may be partly driven by companies who have been forced to shut down as Covid-19 lockdowns are re-imposed in some states.

Barely 24 hours ago, Boris Johnson declared that his government wants “jobs, jobs, jobs”, before his chancellor outlined a £30bn package to support employment.

Well, so far today it’s got “cuts, cuts, cuts”.

As major employers, John Lewis and Boots will get the headlines today. But there are many more companies in distress, and likely to cut jobs.

So warns Julie Palmer, partner and restructuring expert at Begbies Traynor:

Even after yesterday’s government announcement there will be a significant amount of job losses on the high street. Many of the biggest companies have been fighting against the tide of destruction before this crisis, and there is a huge dam of distressed businesses building and waiting to break.

The Covid-19 crisis means that some firms will now implement “drastic change”, rather than gradual transformation, she adds. In some cases, that means shutting stores.

Investment will be poured into parts of the business that are strengthening and pulled from areas that unsuitable for these modern ways of trading. The likes of John Lewis and Boots will exist in the future, but they cannot maintain their empires under their current structure.

TUC policy adviser Alex Collinson says today’s jobs cuts show that Rishi Sunak’s £1,000 bonus for taking back furloughed workers is insufficient:

[Burger King said that up to 10% of stores might close, but that’s being taken as a sign of looming job cuts].

Unions and some economists warned last night that the UK could face mass unemployment unless the government acts more decisively. Today’s announcements suggest those fears are well-founded.

Businessman Luke Johnson argues that the government needs to relax its physical restrictions further to boost retail:

Here’s Reuters’ take:

British health and beauty retailer Boots plans to cut 4,000 jobs and close 48 optician stores, in the latest major blow to the country’s retail sector from the COVID-19 crisis.

British brands including John Lewis and Harrods have announced thousands of job cuts in the last two weeks after the pandemic forced customers to shop online and many remained reluctant to return to the high street even as restrictions eased.

Walgreens Boots Alliance, the owner of the retailer, said on Thursday its most significant COVID-19 impact had come in Britain, with footfall down 85% in April, forcing it to take an impairment charge of $2 billion.

This has turning into a grim day for UK retail - with John Lewis and Boots both axing jobs, and Burger King suggesting it could close stores in future too.

It suggests that Rishi Sunak’s summer statement yesterday is not going to prevent unemployment rising in the coming months, and will fuel concerns that the package isn’t big enough.

Here’s retail analyst Sofie Willmott:

The BBC’s Simon Jack:

And Sky’s Tom Boadle:

Walgreens Boots Alliance CEO Stefano Pessina says the pandemic drove the company into the red in the last quarter, mainly due to the slump in UK sales:

“Prior to the pandemic our financial performance for fiscal 2020 was on track with our expectations. However, this unprecedented global crisis led to a loss in the quarter as stay-at-home orders affected all of our markets.

Covid-19 is also driving shoppers towards digital platforms, he adds (leading to today’s 4,000 job cuts in the UK):

Shopping patterns are evolving more rapidly than ever as consumers further embrace digital options, spurring us to accelerate our ongoing investments in digital transformation and neighborhood health destinations

Boots also warns that retail conditions are expected to remain “very depressed” in the UK, despite the gradual easing of lockdown restrictions.

Boots to cut 4,000 jobs

NEWSFLASH: UK retailer Boots is cutting 4,000 jobs, after being badly hit by the coronavirus pandemic.

In a fresh blow to Britain’s labour market, its parent company Walgreens Boots Alliance says it will cut around 7% of its UK workforce.

Walgreens blames the Covid-19 pandemic, saying sales plunged during the lockdown.

The adverse impact of COVID-19 on sales in the quarter was approximately $700 million to $750 million, with the majority of the impact related to the Retail Pharmacy International division. This reflected a dramatic reduction in footfall in Boots UK stores - down 85 percent in April - as consumers were advised to leave home only for food and medicine.

In response, it is “accelerating” its transformation plan - which includes job cuts:

Key elements of the proposed plan include a reorganization of the Boots store employee structure, the closure of 48 Boots Opticians stores and an additional 20 percent headcount reduction in the UK support office.

Subject to labor consultation, these reorganization actions will impact more than 4,000 positions (7 percent of the workforce).

Walgreens is also taking a “non-cash impairment charge of $2bn”, to cover the losses in the UK market.

Andy Street, the major of the West Midlands, may be particularly upset that Birmingham’s John Lewis is closing.... as he opened it less than five years ago when he ran the retailer!

Back in 2015 Street, then the managing director of John Lewis, was gushing about Birmingham’s prospects. He reckoned the city was enjoying an economic revival, after being neglected too long by politicians who focused on London or the North.

Pledging that the new John Lewis store would boost the economy, Street declared:

“Let’s be clear, manufacturing is a success story here now. Jaguar Land Rover is an incredible success story. We could have been like Detroit – the fact is this is nothing like Detroit, this is an economic revival.

There will be a Harvard business case about the revival and the change in the economy here.”

Obviously Street can’t be blamed for today’s decision, but people are making the connection....

A spokesperson for Birmingham’s Bullring & Grand Central has said they are “disappointed” that the flagship John Lewis store won’t reopen.

They say, via the Birmingham Mail:

“They opened the store in 2015 as part of Grand Central’s £750m regeneration project and this September would have been their fifth year of trading.

“The Bullring Estate is a leading retail and leisure destination with shoppers and brands including Selfridges, which has been a draw for Birmingham for the past 17 years.

Grand Central’s location in New Street Station attracts over 20m visitors a year as part of the busiest train station outside of London.

“We will continue our discussions with John Lewis regarding their future in Birmingham, as there remains a significant period left on the lease.

“However, the strong city centre and high footfall location of the current John Lewis space lends itself to future alternative uses, which we will explore.”

Liam Byrne, Labour MP for Birmingham Hodge Hill, tweets:

Labour MP Shabana Mahmood who represents Birmingham, Ladywood, says the closure of the Bullring store at New Street is ‘terrible news’:

Croydon North MP Steve Reed is equally disappointed that the story in his constituency is being shuttered:

Full story: Eight John Lewis stores axed

Many other retailers are also laying off thousands of workers, due to the slump in high street trade since Covid-19 struck.

My colleague Sarah Butler explains:

The job losses come after the announcement of nearly 9,000 high street job cuts last week, after a swathe of redundancies at retailers ranging from Harrods to Topshop owner Arcadia group and SSP, the company behind hundreds of railway and airport eateries.

A further 2,000 are at risk at Poundstretcher which has warned it could close half its estate if landlords do not agree to rent cuts.

Here’s her news story on John Lewis’s decision:

More than 20 John Lewis stores have reopened from the lockdown, with another 21 due to open later this month.

Here’s the details:

ABOUT JOHN LEWIS SHOP REOPENINGS

Kingston and Poole reopened on Monday 15 June.

Bluewater, Cambridge, Cheadle, Cheltenham, High Wycombe, Horsham, Ipswich, Norwich, Nottingham, Solihull, and Welwyn reopened on Thursday 18 June.

Peter Jones, Southampton, York, Milton Keynes, Liverpool, Leeds, Cribbs Causeway, Newcastle, and Tunbridge Wells reopened on Thursday 25 June.

Basingstoke, Cardiff, Chelmsford, Chester, Edinburgh, Exeter, Glasgow, Stratford, Trafford will reopen on Monday 13 July. Given the size and scale of the shop, Oxford Street will open later in the week on Thursday 16 July to allow the shop additional time to finalise reopening.

Aberdeen, Ashford, Brent Cross, Chichester, Leicester, Oxford, Peterborough, Reading, Sheffield, Swindon Outlet and White City will reopen on Thursday 30 July.

Updated

Here are the details of the eight John Lewis stores which are to permanently close:

John Lewis store closures: instant reaction

John Lewis’s decision to shut eight stores highlights the wider crisis in UK retail, says James Child of Estate’s Gazette.

Retail analyst Steve Dresser argues that John Lewis is doing the right thing - although it’s grim news for the 1,300 staff affected.

The BBC’s Adam Parsons points out that this is a second blow to Watford’s shopping centre, with Debenhams shutting its store there last month.

Becky Johnson of Sky News points out that the Birmingham store is a major part of the Grand Central development by New Street station. It was unveiled in 2015, with four floors of selling space.

Updated

Sharon White, Chairman of the John Lewis Partnership, says the decision to shut eight stores is sad, but also necessary.

“Closing a shop is always incredibly difficult and today’s announcement will come as very sad news to customers and Partners. However, we believe closures are necessary to help us secure the sustainability of the Partnership - and continue to meet the needs of our customers however and wherever they want to shop.

Redundancies are always an absolute last resort and we will do everything we can to keep as many Partners as possible within our business.

White (who joined earlier this year), insists there are also reasons for optimism:

Waitrose and John Lewis are two of the UK’s most loved and trusted brands and we have adapted to the challenges of the pandemic by responding to the new needs of customers. We will soon announce the output of our strategic review which will ensure our brands stay relevant for future generations of customers.”

John Lewis to shut eight stores

Newsflash: John Lewis has announced that eight of its stores in the UK are to permanently close, putting 1,300 jobs at risk.

The retail chain says it is responding to changing shopping patterns in the pandemic, and to secure its “long-term future”.

The eight stores which won’t reopen include full-size department stores in Birmingham and Watford, and four “At Home” shops in Croydon, Newbury, Swindon and Tamworth.

It is also closing two travel hub shops - at Heathrow, and St Pancras in central London. They’ve both suffered from the plunge in travel since the Covid-19 crisis began, badly hurting demand for flights and train journeys.

John Lewis says it will now enter consultations with around 1,300 partners who work at the eight stores:

If redundancies are confirmed, every effort would be made to find new roles where possible for Partners who wish to remain within the Partnership. Opportunities could include transferring to local Waitrose shops or working for johnlewis.com and waitrose.com as they continue to grow.

The Partnership has also made a commitment to provide support through a unique Retraining Fund, which will contribute up to £3,000 towards a recognised qualification or course for up to two years for any Partner with two years’ service or more.

John Lewis adds that these shops were already struggling, before the pandemic accelerated the move to online shopping:

Prior to the pandemic, the eight shops identified were already financially challenged and the pandemic has accelerated the switch from shopping in-store to online. Before the virus struck, 40 percent of John Lewis sales were online. This could now be closer to 60 to 70 percent of total sales this year and next.

John Lewis is also preparing to open some stores soon, having shut the doors during the lockdown.

A further nine shops in Aberdeen, Ashford, Brent Cross, Chichester, Oxford, Peterborough, Reading, Sheffield and White City Westfield will reopen on 30 July.

Leicester will also reopen when the local lockdown for the city is lifted, taking the total number of reopened John Lewis shops to 42. The Swindon outlet will also reopen on 30 July.

Updated

German manufacturing firms are largely optimistic that they’ll return to growth next year, a new survey shows.

Industry body VDMA has reported that a majority of engineering firms are optimistic of achieving nominal sales in 2021.

Encouragingly, only 10% say they’re still suffering supply chain disruptions. Less cheerily, more than half expect revenues to fall by 10% to 30% this year.

Shares in UK housebuilders are rallying this morning, on signs that the sector may be recovering from the pandemic.

Persimmon, the UK’s second-largest home builder, told the City this morning that sales have strengthened in recent weeks, and are almost a third higher than a year ago.

The company halted work when the lockdown began, but operations had resumed by the end of June.

Reporting results for the first half of 2020, CEO Dave Jenkinson says:

Our build programmes had returned to normal levels by period end [30 June], and we have seen encouraging sales levels throughout the period, in particular, over the last six weeks when net reservations have been c. 30% ahead year on year.

“We enter the second half in a strong position, with work in progress well advanced, forward sales c. 15% ahead year on year, and cash holdings of c. £830m.

Persimmon shares have jumped by 5% this morning, to the top of the FTSE 100 leaderboard, with Taylor Wimpey up 3.5% and Berkeley gaining 3.3%.

The temporary stamp duty holiday on properties in England and Northern Ireland under £500,000, announced by chancellor Rishi Sunak yesterday, could also be lifting the sector (as it could allow sellers to hike prices).

Rolls-Royce shares slump amid airline crisis

Back in the UK, jet engine maker Rolls-Royce has lifted the lid on the cost of the Covid-19 crisis, and warned that a full recovery could take several years.

Rolls-Royce told the City it has burned through £3bn of cash in the first half of 2020. That’s partly due to a fall in new engine deliveries and less need to service engines in service (as many planes were grounded).

Rolls-Royce also warned that the “medium-term market outlook for the commercial aviation industry” has deteriorated., meaning revenues won’t recover quickly.

Due to the deterioration in the medium-term outlook caused by COVID-19, absent mitigating actions, we forecast a shortfall of US$ denominated cash receipts over the next seven years compared to our hedged position

It’s already taking action, cutting 9,000 jobs across the group (3,000 UK staff have applied for voluntary redundancy already, with 2,000 expected to leave by the end of August).

But the City is concerned, with shares slumping by 7% this morning.

Updated

The latest inflation figures from China also suggest the world economy is in recovery mode.

Chinese producer prices (what stuff costs at the factory gate) jumped by 0.4% in June, reversing a 0.4% decline in May. That implies that higher demand allowed manufacturers were lift prices a little.

On a annual basis, the PPI was still 3% lower than a year ago, though.

German DAX leads European markets higher

Germany’s main stock index has jumped 1% at the start of trading, as investors welcome the pick-up in exports.

SAP has jumped 7% after reporting a pick-up in sales. Major manufacturers are also among the top risers, with pharmaceuticals maker Merck up 2%, BMW up 1.2% and Adidas up 0.9%.

But other European markets are less buoyant, with UK stocks falling a little:

  • Stoxx 600: up 1 point or 0.3% at 367.5
  • FTSE 100: down 11 points or 0.2% at 6,144
  • German DAX: up 116 points or 1% at 12,611
  • French CAC: up 3 points or 0.03% at 4,984

Craig Erlam, Senior Market Analyst at OANDA Europe, says:

European stock markets are off to a decent start on Thursday, following a couple of days of declines as indices continue to linger close to recent highs.

There’s no doubt that the bounceback has stalled but, encouragingly, we’re not yet in reverse despite the growing concerns about Covid second waves. Naturally, the sheer amount of monetary and fiscal stimulus and the promise of more if needed, is giving investors reason to stay strong, despite the economic outlook being far from as promising as what the markets would suggest.

German software maker SAP has also reported a pick-up in demand.

SAP told investors last night that business activity gradually improved in the second quarter of 2020, with revenues and operating profit edging up from their Q1 slump.

Europe’s biggest tech company struck an upbeat tone (under the circumstance)

“Software licenses revenue, while still below normal levels, recovered more than expected.

SAP is also sticking to its full-year guidance, although it all depends how the pandemic plays out...

The outlook continues to be based on the assumption of a gradually improving demand environment in the third and fourth quarter as economies reopen further and population lockdowns ease.

German trade recovery: what the experts say

German exports have staged “a first comeback” by jumping 9% in May, says Carsten Brzeski of ING, but there’s plenty more room for improvement.

Looking ahead, while April was the worst month ever in terms of most economic data releases, the month of May has been one of the best months ever.

However, it will need a couple of these ‘best month evers’ to bring the economy back to its pre-crisis level. Particularily the divergence between domestic and external demand is remarkable.

While retail sales surged with the lifting of the lockdown measures, the much more muted improvement of industrial production and exports illustrates that the former growth engines of the German economy will continue to stutter for a while.

Brzeski has also spotted those regional differences:

The different degrees of lockdowns across eurozone countries are also reflected in German export data, with exports to France, Italy and Spain dropping more significantly in April than to most other trade partners. Interestingly, the share of exports to China increased to the highest level ever.

Paul Donovan of UBS Wealth Management says Germany’s factories are leading the recovery:

German trade data showed exports and imports growing. Services have been hit more than manufacturing by the virus, so trade should outperform the economy for now.

Here’s Oliver Rakau of Oxford Economics:

Updated

German exports to UK halved in May

Today’s trade figures also show that German companies only sold half as much to British counterparts as usual in May, compared with a year earlier.

Destatis explains:

The degree to which year-on-year exports were affected depended on the trading partner. Exports to the People’s Republic of China decreased rather moderately by 12.3% to €7.2bn euros in May 2020 compared with May 2019.

Exports to the United States, which have been hit particularly hard by the coronavirus pandemic, dropped by 36.5% to €6.5bn. Compared with the same month last year, exports to the United Kingdom showed a particularly strong decrease, by 46.9% to €3.5bn.

Sales from the UK to Germany also fell year-on-year, but not as sharply.

In May 2020, most imports came to Germany from the People’s Republic of China. Goods to the value of €10.7bn were imported from there, which was 23.4% more than in May 2019. Imports from the United States fell by 26.9% to €4.4bn in May 2020. German imports from the United Kingdom were down by 20.3% to €2.2b euros.

Introduction: German trade starts to recover

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

As Europe’s powerhouse economy, Germany will play a huge role in leading the region out of its coronavirus slump. And today we can see that exports have picked up sharply as the lockdown eased - although there’s still a long way still to go.

Exports from German companies jumped by 9% in May, statistics body Destatis reports, to €80.3bn. Imports rose by a more modest 3.5%, to €73.2bn, widening Germany’s trade surplus.

Although encouraging, that still leaves imports over 21% lower than in May 2019, with exports a whopping 29.7% lower. But it’s a sign that economic demand has been picking up as companies struggled to return to work amid the pandemic.

Destatis points out that Germany’s trade position is much weaker than before the crisis began:

Compared with April 2020, exports were up 9.0% and imports 3.5% after calendar and seasonal adjustment. Compared with February 2020 – the month before the corona lockdown, exports decreased by a calendar and seasonally adjusted 26.8%, and imports by 18.2%.

The figures also show that trade with the US and UK was particularly weak in May, while exports to China held up better -- as the Chinese lockdown ended earlier, of course (more on that shortly..).

Also coming up today

European stock markets are expected to open higher, after China’s equities rallied to another five-year high, their eighth day of gains.

The latest unemployment figures from America are likely to show that more than a million people filed new welfare claims last week, extending a grim run which began in March.

This ‘initial claims’ figure is expected to dip from 1.42m to 1.37m, still alarmingly high, as some states reimposed lockdown restrictions as Covid-19 cases rose.

Euzone finance ministers are meeting today, to select their next leader. Spanish economy minister Nadia Calvino, Irish finance minister Pascal Donohoe and Pierre Gramegna of Luxembourg are all in the running to chair the eurogroup.

The vote comes at a crucial time, as European leaders struggle to agree the details of a massive recovery fund.

The agenda

  • 9am BST: Eurogroup meeting begins
  • 1.30pm BST: US weekly jobless figures
 

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