£100bn Boost to Bond Buying Programme:

Last week saw a big focus on debt as government borrowing reached extreme levels. The Bank of England promptly reacted by boosting its bond buying programme. Government debt to GDP breached 100 per cent for the first time in nearly 60 years. But that really needs to be put in context. Government spending might be up but spending by everyone else is considerably down. So, it is unlikely to have the inflationary impact predicted. With investors still willing to lend to government at near zero interest rates, it looks like there is a lot of room for the chancellor to manoeuvre.

Elsewhere, in the US there are rising Covid-19 infection rates in Texas, Arizona, Florida and Oklahoma. That is, all states that eased their lockdown restrictions early. The indications thusfar are that the US maybe entering its second wave. Donald Trump is due to hold an election rally in Tulsa, Oklahoma, later this month. So, it comes as a reminder that the virus is likely to play a major part in the election campaign.

UK: Unemployment Ticks Up as Inflation Falls Again

UK inflation fell to 0.5 per cent in May. Meanwhile, the sharp drop in consumer spending on leisure and recreation, as well as petrol and diesel, continues to cause the rate to fall. Although May saw a month on month increase of 12 per cent in retail sales they remain 13 per cent below their pre-coronavirus levels.

The UK jobs market has been resilient in the face of the Covid-19 crisis. The unemployment rate for the three months to April was 3.9 per cent. That’s up just 0.1 percentage points on the previous year. The government’s job protection schemes appear to be working. ONS figures show around 6 million more people are temporarily off work. However, the data shows a sharp drop in the number of self-employed – the section of the workforce which has seen the least government support. The three months to April also saw the first drop in average earnings in two years. Many workers have seen their income drop due to the government’s furlough scheme.

Oil: BP Predicts Oil Price Will Remain Subdued in the Long Term

The recovery in the price of oil received further support this week as the OPEC+ countries agreed to stick to the production cuts set in April. The price of Brent Crude has increased through May and June to stand at $42 a barrel, up from just under $20 at the end of April. Greater compliance with the production cuts, combined with a drop in output from the US shale producers and the gradual increase in demand as economies emerge from lockdown are also helping push the price up.

However, the long-term outlook could remain subdued compared to the pre-coronavirus price. This week BP wrote off $17.5bn from the value of its oil and gas assets as it said its long-term projection for Brent Crude is $55 a barrel. This figures is an estimate out to 2050, as the company said demand would recover more slowly than expected and the coronavirus shutdown would speed up the adoption of cleaner energy.

 

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