Britain’s economy has begun to repair the damage from the coronavirus lockdown as restrictions are gradually lifted, despite mounting concern over the long-term damage to the jobs market, according to a Guardian analysis.
As the government prepares to scale back the furlough scheme from 1 August, the Guardian’s monthly tracker of economic news suggests the hit to employment and household finances is gathering pace. However, the easing of lockdown is enabling business activity and retail sales to return close to pre-pandemic levels, despite severe pressure remaining for the hardest-hit sectors of the economy.
In a warning over the country’s future growth prospects, Howard Davies, the chairman of NatWest Group, said the recovery could run out of steam this winter as government support was gradually removed.
Writing in the Guardian, the head of the majority state-owned lender, which also owns the Royal Bank of Scotland brand, said: “We cannot assume the spending recovery we have seen so far will persist into the autumn. There is a risk that the prospect of job losses will dampen spending.”
The Guardian has chosen eight economic indicators, as well as the level of the FTSE 100, to track the impact of Covid-19 on jobs and growth and the measures used to contain it. Faced with the deepest global recession since the 1930s Great Depression, the coronavirus crisis watch will also monitor how the UK is faring compared with other countries.
Four months into the health emergency, the latest snapshot shows easing lockdown has helped to reboot growth from the steepest drop in business and social activity since records began, powered by the release of pent-up demand for activities put on hold during lockdown.
Gross domestic product (GDP) returned to growth in May as companies began to restart activities paused a month earlier when the coronavirus crisis peaked. However, the expansion in the economy, of 1.8% on the month, was weaker than expected.
Underlining the scale of the challenge to return life as close to normal as possible, the sharpest declines in economic activity came in the food and drink sector over the three months to May, with output plunging by 69% because of the closure of bars and restaurants.
The reopening of non-essential shops in June helped drive up retail sales by 13.9% in June compared with the month earlier – helping total sales to snap back closer to pre-pandemic levels.
However, the rise was driven by pent-up demand for purchases put on hold during lockdown that are now unlikely to be repeated in future. Online shopping, food sales and DIY sales also rose as people continued to stay at home.
Clothing and other non-food sales remained significantly depressed, in a reflection of the pressure facing the high street. Growing numbers of jobs are being cut by major retailers, while hundreds of shops are being closed across the country – including at Boots, John Lewis and Marks & Spencer.
In the past month, the chancellor, Rishi Sunak, launched a £30bn package of tax cuts and spending measures in his summer economic update in an attempt to kickstart growth as lockdown measures are lifted.
Designed to move the country out of the initial crisis phase of Covid-19 and to get people back to work, the plan comes as the Treasury begins to wind down the furlough scheme, starting in August with companies required to pay national insurance and employer pension contributions for furloughed workers.
As many as 9.5m jobs have been furloughed at 1.2m companies, at a cost to the exchequer so far of more than £30bn as the state paid for 80% of the wages of temporarily laid-off staff.
However, business leaders and opposition MPs have warned the removal of support will come despite Britain’s economic recovery not yet having fully taken hold, with the continuing risk to public health from coronavirus weighing down demand for goods and services.
According to the Office for Budget Responsibility, the government’s economics forecaster, at least 10% of furloughed jobs will be made redundant before Christmas. It expected the unemployment rate, currently at 3.9%, to more than double to levels unseen in Britain since the 1980s.
While many people working from home have managed to save money during lockdown, research from the Resolution Foundation thinktank shows that the average household has suffered the biggest hit to its finances since the 1970s.
Davies, the chair of Britain’s biggest lender, said the end of mortgage holidays for homeowners and the removal of the furlough scheme could damage spending in the coming months – weighing on Britain’s economic recovery.
“Although the most recent retail sales figures are encouraging, we could well see the up-stroke of the V flattening out as we proceed,” he said, referring to the shape of an economic recovery when plotted on a chart.
“The cashflow impact of the crisis has in effect been deferred from the second quarter of the year to the third.”
