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12 October 2020: Lock-tober

The latest brief from the bank’s chief economist.

Last updated: 12 Oct 2020 5 min read

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Customarily a month renowned for beer festivals, October is shaping up to be quite the opposite this year, with restrictions around the hospitality sector to varying degrees across the UK. Indeed, time has been called across the pubs in Scotland’s central belt. Daily Covid-19 cases continue to surge across much of Europe, putting out any glimmer of hope for a V-shaped recovery. The ball is in the policymakers’ court, yet again.

Doing what is necessary

Chancellor Rishi Sunak is living up to the promise he made at the start of the coronavirus crisis. Swift to respond to the challenges posed by a second wave, the government has expanded the Job Support Scheme to offer a two-thirds wage subsidy to businesses which have to legally close due to new restrictions. Additionally, cash grants for firms have been increased to £3,000 per month. The enhanced policy lifeline is sure to help many, especially the struggling hospitality sector.


Basking in the August warmth, seeing parts of the UK that we’d always meant to visit, all while enjoying a discounted meal out, the recovery had a feel-good factor a few months back. And that was at least partly true. Hospitality and eating out made a sizeable contribution to growth during August, more than half in fact. Away from those sectors it thinned out pretty quickly, collectively amounting to a 2.1% GDP monthly rise, less than a third of the pace of July. Other data was suggesting as much, this confirmed it – the recovery has lost momentum. Timelier data than GDP suggest September could be similarly weak. And that’s before the renewed restrictions of October.

Life ain’t always what it seems to be

Largely unnoticed amidst the coronavirus hubbub, something very unusual is unfolding. For the first time since Puff Daddy topped the charts with I’ll be Missing You (1997), the UK is actually running a trade surplus. Not only that but the surplus grows larger, hitting £7.7bn, in the three months to August (excluding precious metals). Where UK plc really excels is net exports of services, which rose 10% to £30.7bn this summer. Our trade deficit in goods is still hefty but even this has shrunk by around one quarter recently. Just nod along.

Party like it’s 1999

Pent-up demand was conspicuous by its absence in the UK’s new car sales market last month. September is normally a strong month with the introduction of new plate numbers, but sales slipped by 4.4% year on year, marking the worst September sales figures in 21 years. Consumers appear to be reluctant to spend on the biggest discretionary spending item after a house purchase. Three quarters of the way through 2020 and sales are down one third on last year. One bright spot is the surge in electric vehicle and hybrid sales, which have eclipsed diesel car registrations for the first time in September.

On thin ice

The Bank of England’s September Decision Maker Panel survey, with over 2,600 respondents, confirms significant concern around the outlook remains. Estimated sales in 2020 Q3 are likely to be 14% lower than the pre-pandemic level. That’s significantly better than Q2’s -30%, which is good news, but a weaker recovery is expected over the subsequent two quarters. And Brexit is a further dampener on prospects. Only 4% of businesses seemed positive about being able to handle trading requirements at the end of the transition period. Looking at Brexit negotiations (again) for relief!


In the latest Business Impact of Coronavirus Survey, nearly a fifth of businesses reported an intention to use increased homeworking as a permanent business model in the future. The highest proportion of such businesses are in education (private sector only, 51%) and information and communication (41%). Businesses intending to use increased homeworking do it because of improved staff well-being, reduced overheads, and increased productivity. Those not intending to use increased homeworking attributed it primarily to lack of suitability and communication. Still, there just might be a few extra households looking for an additional room.

Shifting gears

Nationwide’s House Price Index registered annual growth of 5% in September, further extending the mini-boom in the UK’s housing market. The surge continues to be powered by pent-up demand, stamp duty holiday and lifestyle changes. However, the story is not the same for each segment. Mortgage rates for higher loan-to-value loans have inched up of late, potentially squeezing first-time buyers. A trend potentially compounded by further deterioration in labour market conditions. Add to this the souring of sentiment arising from the second wave, this mini-boom may be running its course.


The US Federal Reserve is in favour of more fiscal stimulus to prop up the economy – it’s counting on it, too. Fed officials “noted that their economic outlook assumed additional fiscal support and that if future fiscal support was significantly smaller or arrived significantly later than they expected, the pace of the recovery could be slower than anticipated”. A view reiterated this past week by Federal Reserve chair Jay Powell. But such calls appear to be landing on deaf ears, judging from latest comments from US president Donald Trump. The risk is that further fiscal measures are delayed until early 2021, weighing on US activity.

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