Britons woke up this morning to news that the UK economy shrunk by 20.4% in the second quarter, the worst slump on record and the biggest drop of any major global economy.
The crash follows a 2.2% contraction in the first quarter, meaning the economy is officially in recession. The country’s finance minister, Rishi Sunak, said the figures “confirm that hard times are here.”
“Hundreds of thousands of people have already lost their jobs, and sadly in the coming months many more will. But while there are difficult choices to be made ahead, we will get through this,” he said.
Lockdowns necessitated by the coronavirus pandemic were the principle cause for the widespread economic destruction. But there is ample evidence that policy decisions made by voters and their elected leaders — both in the recent past and years ago — made the crisis worse than it could have been.
Rewind to June 23, 2016. That’s the day the British people voted by a narrow margin to leave the European Union, their biggest export market, and embark on a new future outside the bloc.
The result was years of uncertainty that discouraged companies from investing in Britain and sapped the economy of much of its dynamism. Average annual gains in real GDP fell from 2.4% in the three years prior to the vote to 1.6% after, according to Berenberg.
“Future historians will mark 23 June 2016 as the day when the UK, like a train switching tracks, suddenly veered off onto a different path,” Kallum Pickering, a senior economist at Berenberg, said in a research note.
The malaise was well established when the coronavirus pandemic struck earlier this year, leaving the economy more vulnerable and flummoxing a government led by Prime Minister Boris Johnson that has been widely criticized for its response.
Johnson promised a “world beating” track and trace system, but it has not materialized. Care homes for the elderly have been ravaged by the disease, the government was slow to add testing capacity and the prime minister’s chief adviser confused government messaging on social distancing by driving hundreds of miles to a second home during lockdown.
One result: The UK economy has shed 730,000 jobs since the coronavirus pandemic shuttered businesses in March, with the young, the old and the self-employed bearing the brunt of the unemployment crisis.
The outlook for the UK economy remains bleak.
Even after years of back and forth over Brexit, the country has not yet negotiated a post-Brexit trade agreement with the European Union. The deadline for such a deal to be struck is the end of the year.
Talks are not going well — raising the possibility of another major shock just as the expected economic recovery gains momentum.
“Whether the post-Brexit path will run largely parallel to the old one, with the UK heading in a roughly similar direction … or take a new direction entirely, remains an open question,” said Pickering.
Tesla splits 1 share into 5
Shares in Tesla have jumped up by roughly 5% in premarket trading after the carmaker announced a five-for-one stock split.
Why split? Tesla said in a statement that the split is intended to “make stock ownership more accessible to employees and investors.”
In practice, the move means that an investor who owns one Tesla share will own five after the split, which is scheduled for August 31. The price of a single share will therefore be divided by five.
Tesla shares have risen more than 200% since January to more than $1,370, and its market capitalization has topped the combined value of rival carmakers Toyota and Ford.
The benefit: By increasing the number of shares available, Tesla may be able to attract investors who were put off by the high price of a single share.
Good company: Apple, another tech firm with an astronomical share price, announced last week that it would execute a four-for-one stock split.
Bitcoin soars while gold stumbles
Bitcoin is on a tear.
The price of one bitcoin is now trading just above $11,500, the highest level in about a year. The value of the digital currency is now up more than 180% from its mid-March lows of about $4,000, reports my colleague Paul R. La Monica.
What’s driving the spike? Experts say much of it is due to the weakness in the US dollar. The dollar has plunged in recent months on expectations that the Federal Reserve will keep interest rates near zero for years as a result of the financial disruption from the Covid-19 pandemic.
“It’s a flight to safety,” said James Putra, head of product strategy for TradeStation Crypto.
Of course, safety is a relative term these days. Investors may think that bitcoin is a good hedge against a falling dollar. But the virtual currency remains exceedingly volatile.
Gold, another asset typically considered a safe haven by investors, has been on a wild ride since recently hitting a record high above $2,000 an ounce.
But prices have tumbled in recent days, briefly slumping back below $1,900 on Wednesday. Part of the decline has been attributed to a surge in US Treasury yields on Tuesday, while other analysts point to optimism around a coronavirus vaccine. Either way, investors should expect more volatility.
US inflation data will be published at 8:30 a.m. ET.
- A report on crude inventories from the US Energy Information Administration will be published at 10:30 a.m. ET.
- Cisco will release its quarterly results after the closing bell.
Coming tomorrow: Earnings from Baidu.