UK challenger bank Virgin Money has returned to profit – another signal that the economy is picking up.
Virgin Money made a £72m statutory pre-tax profit in the six months to 31 March, up from a loss of £7m a year ago.
CEO David Duffy says the bank is ‘cautiously optimistic’, but sees an uncertain economic outlook:
We are cautiously optimistic about the improving outlook as the impact of the vaccination programme in the UK delivers positive revisions to economic expectations.
We’re continuing to manage through what is still an uncertain economic backdrop, but the bank is well placed, with a strong balance sheet, and through ongoing strategic delivery we have a clear path to long-term, improved sustainable returns.”
Virgin is setting aside less money to cover bad debts – an extra £38m for the last quarter, compared with £232m a year ago.
However, some larger banks, such as Lloyds and HSBC, have started releasing some of these provisions, concluding that fewer customers will default on their loans than feared.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
After a torrid 12 months, car sales in the UK are finally on the road to recovery.
Data due this morning will show that car sales jumped last month as dealers in England and Wales reopened their doors, following the easing of lockdown measures in mid-April which allowed non-essential shops to reopen.
Preliminary data from the Society of Motor Manufacturers and Traders are expected to show a 30-fold year-on-year increase in car sales for last month.
That’s compared to the nadir of the first lockdown; sales plunged by 97% in April 2020 to just 4,321 new vehicles, the worst month since shortly after the second world war.
This April, car showrooms were back open again (from Monday April 12) – rather than relying on online sales methods such as click-and-collect.
Last month, customers were able to buy cars in person from April 12 in England whilst delivery, click and collect and online services also facilitated purchases. Plants have continued to operate with COVID safe measures in place.
Sales stood at around 141,000 vehicles last month, still down 13% on the 2010-2019 monthly average, the Society of Motor Manufacturers and Traders (SMMT) said on Wednesday.
However, that would still leave sales below their level in April 2019, when there were 161,064 new car registrations.
Clearly demand is still being affected by the pandemic, with some people working from home rather than the office, furloughed, or having lost their job in the last year.
And this rising demand may put more pressure on manufacturers, who are already struggling to source components such as semiconductors, as supply chains feel the strain.
Last month both Mini and Jaguar Land Rover temporarily shut down some production, because of the shortage of computer chips.
Yesterday, Germany’s Infineon warned that the global chip shortage could mean 2.5m lost car sales in the first half of 2021.
We get the car sales figures at 9am UK time….
Also coming up today
European stock markets are set for a higher open, after wobbling yesterday after Treasury secretary (and former central bank chief) Janet Yellen startled investors by talking about the need to raise interest rates.
Tech stocks slumped after Yellen’s suggested that some very modest rate rises could be needed to prevent the economy overheating, due to the Biden administration’s massive infrastructure and welfare spending plans.
Yellen later clarified the remarks, saying she wasn’t predicting or recommending rate hikes, which seems to to have given investors some reassurance….
Of course, record low interest rates can’t last forever, but the path higher could be rocky. As Chris Weston of brokerage Pepperstone explains:
Ultimately, we all know that the investment made by the Biden Administration will need to be offset by tighter monetary policy in the future, so these comments should in no way shock but hearing it from a high-level official makes the market nervous.
Again, a world where we see lower liquidity from central banks is a world questioning how financial assets perform, as so much of the future performance has been brought forward. And as the gravy train is pulled away, it brings the extreme valuation into question and ascribes a lower risk premium. This will mean higher volatility.
On the economic front, we get a healthcheck on Europe’s service sector companies – which may show a return to growth after the eurozone fell into recession last week.
The latest US private payroll data could move the markets – it’s likely to show a sharp jump in employment last month.
- 9am BST: Eurozone services PMI for April
- 9am BST: UK car sales for April
- Noon BST: US weekly mortgage figures
- 1.15pm BST: ADP payroll of US private sector employment in April
- 3pm BST: US services PMI for April
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