Neil Birrell, chief investment officer at Premier Miton, isn’t delirious about the jump in America’s PMI this month.

He points out that other data has been less encouraging, such as yesterday’s jump in jobless claims.

“The US PMIs showed a better outlook for the economy, but it’s been a mixed week; good housing data, disappointing jobs data, which is probably unsurprising given the steep recovery we have seen. All eyes will be on the Fed’s meeting at Jackson Hole next week to see what policy support will be forthcoming.”

The US stock market has opened very cautiously, with the main indices basically flat in early trading.

• Dow: down 13 points or 0.05% at 27,726
• S&P 500: down 4.8 points or 0.1% at 3,380
• Nasdaq: down 8 points or 0.07% at 11,256.59

The futures market had been signalling a weaker open, but somehow sentiment turned a little warmer - despite yesterday’s jump in weekly unemployment claims in America.

Mohamed El-Erian of Allianz knows why -- the huge amounts of liquidity being offered by central banks is propping asset prices up, even though the wider economic picture is much darker.

Online electricals vendor AO.com is doing its bit to combat Britain’s looming unemployment crisis.

AO, which yesterday reported a surge in orders during the pandemic, is planning to hire 650 staff to cope with the new demand. Some jobs are quite traditional - delivery drivers and gas engineers. Some, such as a TikTok specialist, are not.

Will Crossrail ever arrive?

Europe’s largest railway infrastructure project - from Reading and Heathrow, across central London, to Abbey Wood and Shenfield - has been delayed again.

It now won’t arrive until 2022 - partly due to disruption caused by Covid-19 - pushing the total cost up by another £450m. The final bill is now approaching £19bn.

Our transport correspondent Gwyn Topham explains:

Crossrail, the mass-transit train line through London, has been further delayed until 2022 and gone another £450m over budget.

Transport for London said that the temporary pause in construction and ensuing slowdown because of Covid-19 distancing requirements had only partially contributed to the latest delays, which mean the Elizabeth line will open more than three years late and cost almost £4bn more than originally budgeted.

The announcement follows a Crossrail board meeting, which concluded that any 2021 opening date was an unrealistic target, only a month after it ruled out opening next summer.

Here’s our news story on this morning’s surprisingly strong UK PMI survey:

The CBI’s Alpesh Paleja recommends caution about this morning’s retail sales and PMI data:

Just in: the downturn in UK manufacturing may have bottomed out.

The CBI’s latest survey of UK factories shows that output volumes in the three months to August continued to fall quickly, but the pace of decline eased somewhat from July’s record decline.

The survey of 278 manufacturers found that output volumes declined in 16 of 17 sub-sectors, led by falls in mechanical engineering, food, drink & tobacco, and motor vehicles & transport equipment sub-sectors.

Both total and export order books remained well below their long-run averages, showing that the recovery could be slow.

Looking ahead, manufacturers expect output to fall at a much slower pace in the next three months.

Analogy of the day:

The jump in UK company growth this month is partly due to the government’s half-price meal voucher scheme.

Eat Out to Help Out has encouraged people back to restaurants and pubs, but that short-term boost could fade this autumn as firms keep cutting jobs.

Jai Malhi, Global Market Strategist at J.P. Morgan Asset Management, explains:

“Today’s eurozone PMI release confirms that while activity is on the mend, the pace of the recovery is slowing. It’s no coincidence that the recovery is losing pace as concerns over new infections have risen. The UK PMI shows recent government schemes such as the “Eat Out to Help Out” scheme have boosted activity in the services sector. The fly in the ointment is employment, where the survey highlights the key risk over the coming months that the furlough scheme ending prematurely could to lead to a rise in unemployment.

The global economy is not yet back to full fitness and until a vaccine is ready, it may not be possible to return to life as it was at the start of the year. Investors will be hoping that governments, supported by central banks, continue to plug the holes left by the virus for as long as it takes.”

In the City, the FTSE 100 index has fallen below 6,000 points for the first time in two weeks.

Mining company Fresnillo is the top faller (-2%), followed by publishing group Pearson (-1.5%) and bank Standard Chartered (-1.5%).

This has knocked the Footsie down to 5,996, down 16 points today.

But the pound has rallied a little against the euro, after this morning’s PMI reports showed a pick-up in growth in the UK, and a slowdown in the eurozone.

This has nudged sterling up to €1.116, the highest in almost six weeks.

Tim Moore, economics director at IHS Markit, says August’s PMI report show the UK economy picked up speed this month.

But...he also warns that firms are less upbeat about growth prospects, and are cutting staff levels sharply.

Survey respondents often noted that it could take more than a year to return output to pre-pandemic levels and there were widespread concerns that the honeymoon period for growth may begin to fade through the autumn months.

Worries about the state of the UK economy and the highly uncertain outlook for the pandemic led to a setback for business expectations in August, with confidence about growth prospects dipping for the first time since the slump in March.

Private sector firms reported another sharp fall in employment numbers as scarring from the pandemic and lingering doubts about the sustainability of recovery resulted in a need to cut overheads. The rate of job shedding accelerated since July, with survey respondents frequently noting that redundancy programmes had been running in tandem with efforts to return some staff from furlough

At first glance, the UK PMI survey for August may look like a V-shaped recovery. But it’s not (at least not yet!).

That’s because it’s a diffusion index - it asks purchasing managers whether conditions improved, deteriorated or stayed the same compared to the previous month.

Today’s survey shows that activity was much stronger in August than July, and growing at the fastest rate since October 2013.

But that doesn’t fully make up for the record contraction reported in April as the economy shut down.

Some early reaction to the strong UK PMI report, from Rupert Harrison of BlackRock...

...Torsten Bell of the Resolution Foundation....

...and economist Julian Jessop:

Although the UK national debt is now £2bn, larger than the entire economy, Britain does not face a debt crisis.

Currently, the UK can borrow cheaper than ever before. Ten-year government debt is currently trading at a yield, or interest rate, of just 0.22% per year.

Before the financial crisis of 2008, the UK had to pay around 5% per year to borrow for a decade.

And with the Bank of England expanding its bond-buying quantitative easing programme to £745bn, investors have confidence in buying UK gilts [higher prices push down bond yields]

Alison Ring, advisor on public finances at accountancy body ICAEW, says:

“The positive news for the Government is that despite debt reaching £2tn, low interest rates have reduced its cost and its growth is slowing as the exceptional support measures to deal with the pandemic are withdrawn and furloughed employees return to work.

“The big question is how much permanent damage is being done to the economy, with accelerating job losses a concerning sign as we approach the autumn. How quickly debt continues to grow will also depend on any additional support that the Government might provide to sectors that are still struggling.”

There is a tiny glimmer of good news in today’s UK public finances report.

Borrowing in June 2020 was revised down by £6bn to £29.5bn, because tax receipts and National Insurance contributions were actually stronger than the ONS first estimated.

A small win, but frankly we’ll take anything we can get right now.

As Hinesh Patel, portfolio manager at Quilter Investors says, there’s not much good news around:

“The government was certainly lacking in good news stories this week, but today’s official borrowing figures show a small win for the Exchequer given June’s borrowing figures were actually less than reported last month due to stronger than expected tax receipts. In addition, retails sales increased 3.6% on the month and are now 3% above pre-pandemic levels in February 2020, but still lag what is expected from a normal July.

“But this does not remove the fact that the UK is officially in a recession, Gfk consumer confidence - a forward indicator of confidence - remains unchanged overnight and now public sector net debt has breached the £2 trillion mark for the first time.

Ruth Gregory, senior UK economist at Capital Economics, says Britain’s record-breaking national debt reflects the ‘extraordinary support’ provided since the pandemic struck:

The £26.7bn the government borrowed in July was the lowest monthly borrowing figure since March as fiscal support started to unwind. Nonetheless, it is another huge sum and pushes borrowing in the year to date to £150.5bn. That is close to the deficit for the whole of 2009/10 of £158.3bn, which was previously the largest cash deficit in history, reflecting the extraordinary fiscal support the government has put in place to see the economy through the crisis.

She also fears that the recovery in retail sales in July will fizzle out this summer, as the government’s stimulus programme ends.

Overall, today’s figures bode well for consumption in Q3, but now that the initial boost from re-opening has passed and fiscal support measures are being phased out, further increases in high street spending in August and beyond will be more minimal.

Here’s some snap reaction to the news that Britain’s national debt has hit the £2tn mark for the first time:

Charlie McCurdy, economist at the Resolution Foundation, says chancellor Rishi Sunak should resist tackling the UK’s debt mountain until the recovery is secured.

“The Government has now borrowed £150 billion since April as a result of the crisis, and efforts to fight it. The national debt has now hit £2 trillion, with more heavy borrowing due as the crisis continues.

“The reopening is the economy is showing signs of having an impact on borrowing though, with the Government spending £6.9 billion in July paying the wages of furloughed workers, down from £8.2bn in June. This 15 per cent fall is smaller than our estimate, based on separate ONS data, that the number of fully furloughed workers fell by around a third over this period, reflecting the introduction of partial furloughing in July.

“The priority for the Chancellor going forward should be to prioritise limiting the depth of the economic crisis, particularly given record low borrowing costs and the risk of a post-furloughing rise in unemployment.

“Only once the recovery is secured should the Chancellor turn to tackling the deficit, with tax rises needing to be a key plank of that plan.”

Tax receipts fell very sharply last month, forcing the government to borrow heavily to cover the shortfall.

The ONS estimates that central government receipts shrank by 16.7% compared with July 2019 to £56.6bn, including £40.4bn in taxes.

That’s due to companies making less profits, workers receiving smaller pay cheques (partly due to the furlough scheme) and people spending less in the shops (so paying less in VAT).

The ONS explains:

This month, tax revenue on a national accounts basis fell by 23.1% compared with July last year, with Value Added Tax (VAT), Corporation Tax and Pay As You Earn (PAYE) Income Tax receipts falling by 26.2%, 29.8% and 6.2% respectively.

Self-assessed tax returns were also sharply lower last month at £4.8bn, £4.5bn less than in July 2019.

Over the last four months, the UK has nearly borrowed as much as in the 12 months after the financial crisis.

The deficit surged to nearly £160bn in the 2009-2010 financial year, due to the cost of bailing out the banks and handling a deep recession.

But with the UK already borrowing £150bn since April, this year’s deficit could be double the previous record, as this chart shows: