UK economy plummets while US markets see positive data

Following a chaotic first presidential debate in the US, global markets were volatile last week. Investors were also discouraged by rising Coronavirus infections, compounding fears of stricter restrictions and further damage to economic activity across the UK and Europe. The FTSE 100 lost 0.13%, but the US S&P 500 added 4.46%, driven by hopes of additional fiscal stimulus from Washington. 
 
Official figures show that in August, the UK government borrowed £35.9bn, as tackling the economic fallout of the pandemic took its toll on public finances. The figure was £30.5bn more than what was borrowed by the government in August last year. The huge increase meant that the borrowing figure reached its highest level for August since 1993, when records began. The Office for National Statistics (ONS) said that total UK debt surpassed £2tn for the first time in history, with the figure now exceeding the size of the UK economy.
 
Furthermore, the UK economy has recorded its largest fall on record and the worst contraction among developed economies, despite shrinking marginally less than what was initially estimated for the second quarter of this year. New data from the ONS shows that output in the UK dropped 19.8% during the second quarter compared with the previous three months. Although the figure is marginally lower than the 20.4% contraction initially estimated, the UK economy shrank more than twice as rapidly as the US and German economies. Analysts predict that the economy is on track to register a record expansion in the third quarter, however, with the number of Coronavirus infections rising and with stricter restrictions to be put in place, economists warn that growth could be hindered before output returns to pre-COVID-19 levels.

On Monday 28th September, US Democrats unveiled a US$2.2tn Coronavirus relief bill in order to provide aid to American families, businesses, schools, restaurants, and airline workers who have suffered from the impacts of the pandemic. With the bill, US$1tn lower than their previous attempt, Democrats hope to finally reach an agreement with Republicans following months of stagnation. According to House Speaker Nancy Pelosi, the new plan will provide the essential resources needed to protect lives and livelihoods over the coming months. In order to respond to the growing pressure for Congress to provide additional relief, the House could vote as early as this week to approve the legislation, unless the recent Coronavirus outbreak at the heart of the White House curtails progress.
 
According to official data, factory activity in China improved slightly in September. The Purchasing Managers’ Index has largely bounced back after plunging in February as a result of strict Coronavirus measures, with the index now increasing to 51.5 in September after slipping to 51.0 in the previous month.
 
On the other hand, Japan’s industrial production was up 1.7% in August from July, increasing for the third consecutive month in a row. The figure was driven by the motor vehicles, steel, and electronic parts industries. Nevertheless, the Ministry of Economy, Trade and Industry highlighted that compared with the same month last year, production fell 13%, due to a decline in the production machinery, electrical machinery and paper industries.