Time for a quick recap

The UK’s Covid-19 jobs crisis has deepened, with the news that redundancies are running at the fastest rate since the financial crisis.

Nearly 156,000 people were made redundant in the May-July quarter, the worst since 2012, after the biggest jump since 2009. This helped to push unemployment up to 4.1%.

Economists warned that redundancies would continue to rise in the coming months, as firms laid off staff as the furlough scheme ends.

The ONS also reported that nearly 700,000 jobs have vanished off UK payrolls since the start of the pandemic, and that more than five million people were still furloughed in July.

The High Court has ruled in favour of small UK businesses, whose insurers refused to pay out over Covid-19 losses. MPs have urged the insurance industry to settle up quickly.

The IEA has slashed its forecast for oil usage in 2020 again, after concluding that rising Covid-19 cases and weak demand for flights means less demand for energy.

Factories in the New York state have reported a jump in activity this month.... although the wider US manufacturing saw growth slow in August.

Stock markets have rallied after China reported a pick-up in retail sales (for the first time this year) and industrial output.

Shares in Ocado have now surged 8%, after it reported strong sales and a successful start to its partnership with M&S.

But UK supermarkets have seen sales drop, as customers dined out during the government’s half-price meal deal:

The US stock market has opened higher for the second day running, as shares recover some of last week’s losses.

The Dow Jones industrial average has risen by 208 points, or 0.75%, to 28,202.

Technology stocks are leading the way, pushing the Nasdaq up by 1.5% to 11,215. That moves it closer to its recent record high.

Just in: Industrial output across the whole United States only expanded by 0.4% in August.

That’s a sharp slowdown on July, when production jumped by 3.5% (that’s been revised up from 3%).

This partly due to a drop in mining output (-2.5%), as tropical storms hit the oil industry.

It’s the fourth monthly gain in a row, but it leave US factory output 7.3% below its pre-pandemic February level.

The Federal Reserve explains:

Manufacturing output continued to improve in August, rising 1.0 percent, but the gains for most manufacturing industries have gradually slowed since June.

Mining production fell 2.5 percent in August, as Tropical Storm Marco and Hurricane Laura caused sharp but temporary drops in oil and gas extraction and well drilling. The output of utilities moved down 0.4 percent.

Just in: Factories in the New York state have reported a strong pickup in demand this month.

Manufacturers in the region have reported that new orders have risen in September, with business conditions also improving.

This drove the Empire Manufacturing index sharply higher, to +17 pints, up from just +3.7 points in August. That’s an encouraging sign for the US economy, as economists only expected it to rise to +6.

The jump in UK unemployment didn’t prevent sterling from strengthening this morning.

The pound has gained three-quarters of a cent against the US dollar to $1.292, its highest level since last Thursday. It’s also a little higher against the euro, at €1.086.

The rally comes as rumblings against the government’s internal market bill grow. Last night, 30 Conservative MPs abstained on an early reading of the bill, and two voted against, unhappy that it breaches the Withdrawal Agreement.

Boris Johnson isn’t backing down, though, despite a vintage drubbing from the opposition’s Ed Miliband yesterday over his disregard of international law (and new dislike of his own Brexit deal).

The bill will be voted on again in the coming days, before heading to the House of Lords (who could send it back amended).

So a no-deal Brexit certainly can’t be ruled out. Indeed, ING economist James Smith thinks it’s a 50:50 chance:

“A deal is now at best a 50:50 probability. The key factor will be whether the Internal Markets Bill makes its way through the Commons and Lords successfully.

If so, the EU is highly unlikely to sign a free-trade agreement with the UK given the lack of trust, and threat of withdrawal agreement breach. However, a deal shouldn’t be completely ruled out, and is still possible if the bill fails/is watered down, but would require the UK to reluctantly relax its red line on state aid. It’s clear the government won’t do a deal at any cost.”

The UK high court has handed down an eagerly awaited, and quite complex, ruling on whether insurers should pay out to businesses forced to shut during the pandemic.

The test case was brought by the UK’s financial watchdog, the Financial Conduct Authority, against eight insurers. It acted after thousands of firms complained that their insurers refused to cover losses, despite selling them business interruption insurance which included clauses on ‘disease’ and ‘denial of access’.

The 162-page report is being analysed now by lawyers, to see exactly what the ruling means.

But according to the FCA, the court has found in favour of the arguments advanced for policyholders on “the majority of the key issues”.

That should mean that more businesses can claim compensation for the disruption suffered over the last six months.

Christopher Woolard, Interim Chief Executive of the FCA, explains:

‘We brought the test case in order to resolve the lack of clarity and certainty that existed for many policyholders making business interruption claims and the wider market. We are pleased that the Court has substantially found in favour of the arguments we presented on the majority of the key issues.

Today’s judgment is a significant step in resolving the uncertainty being faced by policyholders. We are grateful to the court for delivering the judgment quickly and the speed with which it was reached reflects well on all parties.

Woolard adds that today’s judgment “removes a large number of those roadblocks to successful claims”, as well as clarifying which claims won’t be successful.

He’s urging insurers to take note, and pay out claims quickly where appropriate, so that jobs can be saved.

‘Insurers should reflect on the clarity provided here and, irrespective of any possible appeals, consider the steps they can take now to progress claims of the type that the judgment says should be paid. They should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.

However, it’s not immediately clear how many customers will benefit.

Insurance group Hiscox, for example, has just told its shareholders that it believes the extra bill from Covid-19 will be “less than £100 million”, adding:

The Judgment clarifies that fewer than one third of Hiscox’s 34,000 UK business interruption policies may respond. Coverage under these policies is essentially limited to those customers who were mandatorily closed by Government orders, and then only in certain circumstances.

Hiscox’s shares are now up 15%, after initially falling when the judgement came out.

However, campaigners demanding the insurance industry meets its obligations are hailing a historic victory.

The Hiscox Action Group says:

The High Court ruling means that hundreds of Hiscox Action Group members who were forced to close their premises during the pandemic should now receive an insurance pay out from Hiscox Insurance.

European stock markets are all higher this morning, partly lifted by decent economic news from China.

Retail sales across China rose 0.5% year-on-year in August, the first positive move since 2020 began. The increase was driven by a 25% jump in sales of communication equipment, and an 11.8% jump in car sales.

China’s National Bureau of Statistics also reported that industrial production grew 5.6% in August from a year ago, as factories continued to shake off their weakness during the pandemic.

This has lifted optimism in the markets (despite the IEA’s gloomy view on oil demand), putting the FTSE 100 index on track for a three-week closing high. It’s up 45 points, or 0.7%, this morning at 6,071, with Ocado the top riser.

Just in: Concerns over the world economy has forced the International Energy Agency (IEA) to cut its oil demand forecast for 2020, for the second month running.

The IEA now predicts that oil demand will plunge by 8.4 million barrels per day this year, up from 8.1m bpd a month ago. That will pull demand down to its lowest level in seven years.

In its latest monthly report, the IEA warns that the recovery in oil demand is now slowing. It cites a resurgence of Covid-19 cases in many countries, local lockdown measures, continued teleworking and weakness in the aviation sector.

It says:

For 2020 as a whole, we see the fall in demand versus 2019 at 8.4 mb/d, slightly deeper than last month. At 91.7 mb/d, demand has returned to its level in 2013.

The slump in oil demand this year highlights the weakness of the global economy, a factor driving up UK unemployment.

The IEA also warned that the uncertainty created by Covid-19 shows little sign of abating, with the outlook ‘very fragile’.

In Europe, the number of new cases has risen as the holiday season ends, though the rate of hospitalisations and deaths is lower than seen earlier this year.

Case numbers in the United States are falling and the situation seems to be improving in Japan and Korea. However, in various places, the situation is worrying and we are seeing localised lockdowns. Some countries, for example France and the UK, have introduced measures such as mask-wearing obligations and restrictions on gatherings and they may yet go further to fight the pandemic.

These developments weigh heavily on economic activity and lead to lower expectations for a recovery in energy demand. Home working reduces demand but fear of using public transport is leading many workers to use personal vehicles. Factoring these unprecedented developments into conventional analysis is very challenging, to say the least.

Over in the City, meanwhile, shares in Ocado have jumped 6% after it reported a surge in sales over the last quarter.

The home delivery grocer posted a 52% increase in sales in the 13 weeks to 30 August, as the pandemic continued to drive more customers to online shopping.

Ocado told shareholders that:

• ● Retail sales grew faster compared to Q2 as demand remained high versus a seasonally softer quarter in Q3 2019
• ● Average order size continues to normalise from COVID-related peaks to £141¹, but remains above pre-crisis levels

It also insists that the switch away from Waitrose products, to M&S food, has gone well, despite some customers seeing their orders cancelled.

Shares have jumped to almost £25 each this morning, near to last month’s record high -- and up almost 100% since January.....

UK business groups are urging the government to act, before unemployment surges higher in the coming months.

Matthew Percival, director of people and skills at the CBI, warns that a successor to the furlough scheme is badly needed:

“The easing of lockdown restrictions and a more flexible Job Retention Scheme in July have led to the beginning of a recovery in vacancies and hours worked. But rising redundancies, rising unemployment and a record fall in the number of young people in work are clear warning signs of what is to come.

“Looking ahead, a successor to the Job Retention Scheme is needed to protect jobs and businesses.”

Suren Thiru, head of economics at the British Chambers of Commerce, says companies hit by local lockdowns need more help:

“While there was a rise in the number of job vacancies, this is more likely to reflect a temporary bounce as the economy gradually opened, rather than a meaningful upturn in demand for labour. With many firms are still facing waves of cash flow problems, rising costs and an uncertain economic outlook, it is probable that unemployment will escalate sharply as government support winds down.

“To help avoid a damaging cliff edge for jobs more must be done help firms keep staff on through this deeply challenging period. This should include a significant cut in employer National Insurance Contributions and more substantial support for firms placed under local lockdowns.”

Chancellor Rishi Sunak has responded to the jump in unemployment, by pledging to protect jobs.

However, there’s no sign that he’s going to reverse his decision to end the furlough scheme next month....

Sunak says:

“This is a difficult time for many as the pandemic continues to have a profound impact on people’s jobs and livelihoods. That’s why protecting jobs and helping people back into work continues to be my number one priority.”

Here’s my colleague Richard Partington’s news story on the UK jobs crisis:

The number of redundancies in Britain has accelerated at the fastest pace since the financial crisis as the hit to the economy during the coronavirus pandemic triggers rising levels of unemployment.

Against a backdrop of growing concern over a jobs crisis this autumn as the government’s furlough scheme comes to an end, the Office for National Statistics (ONS) said 156,000 people were made redundant in the three months to July.

This is a jump of 48,000 from the three months to the end of May and the sharpest quarterly increase since 2009.

In an sign of the damage as Britain’s economy plunged into the deepest recession since modern records began during the coronavirus lockdown, the ONS said early indicators from HMRC showed almost 700,000 workers had dropped from company payrolls since the onset of the pandemic in March, with the brunt of the jobs crisis being borne by younger workers....

Younger workers, and older women, both suffered a record drop in employment in the last quarter.

Both groups have been badly hit by Covid-19, according to today’s labour market report.

The ONS says:

Those aged 16 to 24 years decreased by 156,000 to 3.63 million (with a record decrease of 146,000 for those aged 18 to 24 years), while those aged 65 years and over decreased by 92,000 to 1.28 million (with a record decrease of 79,000 for women in that age group).

Tony Wilson, director of Institute for Employment Studies., has tweeted the details:

He also predicts that redundancies will keep rising sharply:

Today’s jobs report shows clearly that the UK labour market deteriorated sharply in July.

With some firms struggling badly, the total jobs lost since March has now risen to almost 700,000 (measured by the number of people on company payrolls).

Bloomberg has the details:

Britain’s labor market took a turn for the worse in July even as the economy gradually reopened, taking total job losses under the pandemic to almost 700,000 and raising pressure on the government to extend support programs.

Employment fell by 102,000, the first decline since April, the Office for National Statistics said Tuesday. The single-month unemployment figure reached 4.4%, the highest since 2018.

While restaurants and pubs started to reopen after coronavirus lockdowns, the figures are a reminder that the upturn in spending masks deeper fragilities.

The number of employees on payrolls in August is down 695,000 from March, compared with 659,000 in July. The number of people claiming for jobless benefits has risen to 2.7 million, an increase of 121% since March.

More here: U.K. Loses 700,000 Jobs to Pandemic as Pressure Mounts for Aid

The Office for National Statistics also reports that over five million people were on the Covid-19 Job Retention Scheme in July 2019.

That means the government was covering a portion of their wages because their employer doesn’t have enough work to need them to do all their hours.

More than 2.5m of those people have been temporarily away from work for three months or more.

So, what’s going to happen in October when the furlough scheme dries up?

There were also around 250,000 people away from work because of the pandemic and receiving no pay in July 2020, the ONS adds.

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

We start with grim news from the UK jobs market. The number of people being laid off has jumped at the fastest pace since the financial crisis, as Covid-19 continues to hurt the UK economy badly.

Figures just released show that 156,000 people were made redundant in the May-July quarter - an increase of 58,000 compared with the same period in 2019.

It’s also an increase of 48,000 compared with February-April, when the Covid-19 crisis began.

This, the Office for National Statistics says, is the biggest jump in over a decade:

Redundancies increased by 58,000 on the year, and 48,000 on the quarter, to 156,000.

These are the largest annual and quarterly increases seen since 2009. While redundancies are at their highest level since September to November 2012, the level remains well below that seen during the 2008 downturn.

Many of those jobs will have been lost in the retail, hospitality, accommodation and leisure sectors, where companies were forced to shut down this spring, and have suffered weak sales since.

Worryingly, it comes before the government wraps up its jobs retention scheme, forcing employers to decide whether to keep furloughed workers on their books or not.

Today’s jobs report also shows that the number of employees in the UK on payrolls was down around 695,000 in August, compared with March 2020. That’s another good indicator of the damage caused by the coronavirus crisis.

This has pushed the UK unemployment rate up, to 4.1%, another concerning sign. That’s still pretty low by historic standards, and shows that the furlough scheme did help prevent an immediate spike in unemployment.

The employment rate has also gone up slightly, to 76.5%, as more people returned to work as lockdowns eased.

But today’s jobs report also shows that younger workers are suffering particularly badly from the recession.

Over the quarter, there has been a large decrease in the number of young people in employment, while unemployment for young people has increased.

More details and reaction to follow....

Also coming up today

We get a new healthcheck on the oil market, where demand had been hammered by the pandemic, plus the latest survey of economic confidence in Germany. Industrial output figures from the US will show if its factories are still recovering.

Overnight, China has reported a pick-up in industrial output and retail sales (more on that later).

There’s not much drama in the markets, with European stocks expected to open flat.

The agenda

• 7am BST: UK labour market report
• 9am BST: IEA oil market report
• 10am BST: ZEW institute survey of German economic confidence
• 1.30pm BST: US Empire State manufacturing index for September
• 2.15pm BST: US industrial production report for August