Summer spending boosted Britain but winter job cuts have yet to bite
The UK economy continued its rapid rebound from the depths of the coronavirus lockdown in August, the latest official data on growth is expected to show on Friday, but many economists are braced for a grim winter as job losses mount.
The Bank of England’s chief economist, Andy Haldane, predicted last week that GDP would be “only around 3-4% below its pre-Covid level” by the end of the third quarter, covering July to September.
That would imply further significant increases in the UK’s economic output since July, when output remained 11.8% below the level hit in February, according to figures from the Office for National Statistics. The full picture for the third quarter will not be evident until November when the ONS publishes initial GDP figures for September.
This week’s figures for August are likely to confirm that the UK enjoyed a historic bounceback in the summer, following the unprecedented 19.8% decline in output in the second quarter.
The recession across the first and second quarters was the deepest on record as the pandemic and lockdown froze much economic activity. The coming weeks will test conflicting interpretations of the pace of the recovery since then, and whether schemes such as the August “eat out to help out” subsidy for the stricken restaurant and hospitality sector are visible in broader economic figures.
Haldane is firmly in the optimists’ camp. He bemoaned recent media coverage, suggesting that a lack of “balance” in reporting may itself restrain the economy’s fightback.
“Now is not the time for the economics of Chicken Licken,” Haldane wrote, pointing to coverage of June growth figures that focused on the overall picture for the second quarter but neglected, in his view, the pace of recovery during that month. That prompted one of the more unusual footnotes in recent monetary policy history, describing the “fictional fowl who, having been hit on the head by an acorn, declared the sky was falling in”.
A more positive narrative that acknowledged the pace of the bounceback would represent balance rather than “boosterism”, Haldane said.
However, many economists question whether the rebound can continue through winter, after the government’s original coronavirus job retention scheme – which initially paid as much as 80% of furloughed workers’ salaries up to £2,500 a month – ends this month.
The generous and unprecedented scheme was credited with forestalling a wave of redundancies, but evidence is building of brutal job cuts as the support is reduced under the replacement job support scheme. One poll of 2,000 managers found that a third of companies – and almost two-thirds of big companies – plan to cut workers in the next three months.
The Bank’s most up-to-date indicators suggest consumer spending, perhaps the most important driver of UK economic growth, is above pre-Covid levels. But Samuel Tombs, chief UK economist at the consultancy Pantheon Macroeconomics, has expressed a view that weaker incomes and low morale mean a consumer-driven rebound is distant.
Yet these traditional sentiments of boom or doom may prove to be irrelevant to the economy’s prospects if a second wave of the virus sweeps through the population.