Markets lose steam as UK businesses call for larger lockdown support package – as it happened | Business

Non-essential businesses have been forced to close across England and Scotland overnight after being plunged into new national lockdowns following a spike in Covid cases.

Airlines have been cancelling UK flights in light of lockdown measures.

And economists have been slashing near-term forecasts for UK GDP growth in Q1.

After calls for extra support for business hard-hit by new restrictions, UK chancellor Rishi Sunak announced a £4.6bn package of aid comprised of:

• One-off top up grants for retail, hospitality and leisure businesses worth up to £9,000 per property to help businesses through to the spring

• A £594m discretionary fund also made available to support other impacted businesses via local authorities and devolved governments

Despite some initial enthusiasm which seemed to lift UK domestic stocks on the FTSE 250 by as much as 1%, business leaders were quick to say that the limited support was not enough to keep firms going.

Firms and lobby groups are now calling for an extension to VAT deferrals, tax relief, and a replacement to the government-backed bounce back loan programme to keep businesses afloat until restrictions are lifted.

There were also concerns about supply chain businesses that may not have valuable enough physical premises to qualify for the grants.

The British Chambers of Commerce said longer term measures covering the whole of 2021 are needed to help businesses invest and plan for the future.

UK stocks were still the only bright spot across a sea of red in European equities, with the FTSE 100 up 0.1% and the FTSE 250 up 0.5% in mid-afternoon trading.

The pound is up 0.1% versus the US dollar at $1.3595 and nearly flat against the euro at 1.1082.

Meanwhile, retailers started reporting their Christmas trading figures:

• Next also emerged as a winner from a tough Christmas period as sales transferred from shuttered stores to its website, but the fashion chain warned new lockdown measures would wipe out the extra profit it had made.

That’s all from us today. We’ll be back tomorrow morning. Stay safe. –KM

US stocks are broadly flat, with the Nasdaq and S&P 500 edging into the red at the start of trading.

Here are the initial prints:

• Dow is up 14.87 points or 0.05% at 30,238.76
• S&P 500 is down 0.94 points or 0.03% at 3,699.71
• Nasdaq is down 19.58 points or 0.15% at 12,678.86

The mayor of London, Sadiq Khan, has also called on the chancellor to extend VAT relief and offer targeted support for businesses in the night-time economy:

While bitcoin is still trading below Sunday’s all-time of $38,000, JP Morgan has predicted that the cryptocurrency could trade as high as $146,000 if it solidifies its reputation as an alternative to gold.

Analysts said bitcoin has emerged as a rival to gold and is being viewed as a way to hedge against inflation by investors looking for an alternative to the depreciating US dollar.

JP Morgan said:

Bitcoin’s competition with gold haas already started in our mind.

Considering how big the financial investment into gold is, a crowding out of gold as an ‘alternative’ currency implies big upside for bitcoin over the long term.

According to Reuters’ report, the note said bitcoin was likely to outshine gold as millennials become a more important component of the investment market over time.

The report added that the bitcoin price would need to jump nearly fivefold to $146,000 to match the value of private gold wealth held in gold bars, coins or ETFs.

JP Morgan’s note added:

We note that the spectacular bitcoin rally of the past few weeks has moved bitcoin into more challenging territory, not only in terms of its positioning backdrop but also in terms of its valuation.

Bitcoin is currently trading up by 2.2% at $31,727, still below the record high of more than $34,800 reached just days ago.

Gold, meanwhile, is trading at $1,950 per ounce.

The chairman of the Federation of Small Businesses Mike Cherry has joined calls for a broader package of support for businesses that he says “matches the scale of the economic damage we are seeing” due to Covid lockdowns.

These funds come after a disappointing festive period and are followed by a last minute lockdown and do not go far enough to match the scale of the crisis that small firms are facing.

There remain too many groups who need more support to weather this storm such as the newly self-employed, those in supply chains and company directors.

The FSB said it’s still calling for the creation of a Directors Income Support Scheme, that would provide a taxable grant for directors of limited companies worth 80% of three months average monthly trading profits, capped at £7,500.

The business group is also calling for extra help for businesses that have maxed out the bounce back loan scheme, (having already borrowed 25% of turnover, worth up to £50,000) but still need more cash to survive.

The FSB also wants to see a longer grace period before businesses are required to repay those loans.

This lockdown is expected to last for some time, even when restrictions ease, many small firms will be unable to function at 100 per cent, if at all. Which is why the government should create a Spring Economy Plan to help firms get through to drive a vaccine-enabled recovery.

After clawing their way through 2020, the start of the new year looks set to be an even worse one for many.

Small businesses are the backbone of our economy, and it is absolutely vital we support them in every way possible until the crisis finally begins to ease.

Berenberg’s senior economist Kallum Pickering adds that the UK government may have to extend some programmes like government-backed loans and furlough to ensure the private sector survives lockdown.

Fiscal policy tools such as the various coronavirus business loan schemes as the well as the furlough scheme (due to end 30 April) may need to be extended once again to further support private sector cash-flow and jobs.

However, he doesn’t think the Bank of England is likely to go to extreme measures like cutting rates below zero, to support the recovery.

While markets may begin to price in a higher chance that the BoE will soon cut the bank rate below zero, it remains unlikely, in our view.

To support confidence, the BoE may announce an increase in the pace of ongoing asset purchases – it has plenty of scope to achieve this within its current plan to buy £150bn of gilts until the end of 2021.

Kallum Pickering, senior economist at Berenberg, says the bank has slashed growth UK forecasts for Q1 in light of fresh lockdowns in England and Scotland.

Instead of a 3% rise, quarter-on-quarter for Q1, Berenberg is now projecting a 2% decline.

Following the new lockdown, the near-term outlook now looks much worse than before.

However, he said the medium term outlook is still positive and the first quarter decline will largely be offset by a faster rebound in Q2 of 9% (compared to the 6% previously predicted)

Pickering added that Q3 growth is also expected to accelerate to 4.5% from previous forecasts of 2.3%, while the fourth quarter is expected to deliver a 1.3% rise versus 0.9% as previously forecast.

The economist said:

On an annual basis, we now project an 11.5% decline in 2020 followed by gains of 6.0% in 2021 and a 6.5% gain in 2022 (previously -11.6%, 7.3% and 4.9%, respectively).

Despite the near-term hit, the UK medium-term outlook remains positive.

With much less Brexit uncertainty and strong gains in global demand ahead, UK real GDP can still recover to its pre-pandemic level by the end of 2022 as previously expected.

Here’s our full story on the Chancellor’s business lockdown support package:

The FTSE 250 is one of the last bright spots across European equity markets.

But the UK’s domestically-focused index has lost nearly half of its gains and is up just 0.5% compared to 1% just a few hours ago. Here is a snapshot of how European equities are trading:

• FTSE 100 is down 0.1%
• Germany’s DAX is down 0.4%
• France’s CAC 40 is down 05%
• Italy’s FTSE MIB is down 0.4%
• the pan-European Stoxx 600 is down 0.2%

Meanwhile, US futures are pointing to a flat open:

• Dow futures are up 0.07%
• S&P 500 futures are up 0.05%
• Nasdaq futures are up 0.04%

Despite calls for further business support (and quick), the chancellor Rishi Sunak has reportedly said that the budget in March will be an excellent opportunity to take stock and set out the next stage of support, according to Reuters.

The budget is set for 3 March.

British Chamber of Commerce boss Adam Marshall has criticised the government for failing to announce Covid restrictions and business support measures at the same time last night.

Speaking to Sky News this morning, he said:

This is a pattern that we have seen repeatedly whereby businesses find that their operations are going to be somehow further curtailed without having knowledge of the support that’s going to be there to help them through that period of restriction and difficulty.

It should be possible, I think, to announce both restrictions and support in tandem, because that in turn generates business confidence and means that phones aren’t ringing off the hook with worried businesses wondering whether they’ll be able to open and be whether they’ll be able to pay their people and their suppliers at the end of the month.

TUI and Thomas Cook are among the airlines cancelling their UK flights amid fresh Covid lockdowns, according to the BBC Scotland’s business editor:

There are still looming deadlines marking the end of government-backed loans, business rates and VAT relief, that may not be offset by the grants programme.

It raises questions over whether further support could be announced before the March budget.

ITV business editor Joel Hills has helpfully laid out the bulk of government support offered to date to businesses hit by Covid:

British Chambers of Commerce director general Adam Marshall says the latest batch of support is effectively short-term plaster, and longer-term solutions are needed if businesses are to survive the next year.

Speaking to Sky News on Ian King Live this morning, Marshall said:

Our rationale is that many businesses are going to face a difficult and uncertain time throughout this year, even if we are lucky enough to see vaccine rollouts happening quickly over the coming months.

It’s going to take businesses time to reestablish demands to re establish cash flow and so much more besides support needs to be consistent and available for a long enough period of time, to help save many of those good businesses and let them get back on their feet.

He added:

I don’t see many businesses are able to invest in these circumstances and when you look at the support measures that are available, many of them still have a cliff edge at the end of March, or at the end of April, they are very short term in nature.

And however welcome they might be for those businesses who are struggling to pay their bills over a period of weeks or indeed a month or two, they don’t let many companies plan.

British Airways owner IAG has said it’s reviewing its flight schedule following the UK’s national lockdown, according to Reuters.

We’ll bring you further updates as we get them.