Too early to write off post-covid recovery
Saved by the North Sea – that will have the eco-warriors choking on their almond milk. It says something about the fragility of the economic recovery that without the reopening of an oil field to boost production output, UK growth would have stalled in July.
“Freedom day” was supposed to put the turbo-boosters on. Instead, the pingdemic and supply bottlenecks squeezed growth to just 0.1pc. Compared to 1pc in June and forecasts of 0.6pc that is a significant slowdown.
The picture was grim across the board. The services sector, which accounts for four-fifths of output, didn’t grow at all, and consumer-facing services fell for the first time since January. Construction output fell for the fourth consecutive month, and manufacturing was flat.
Yet, the ONS’S decision to move to monthly reporting means gyrations appear more acute, and there were always going to be bumps in the road after such a massive shock. Financial markets were largely unmoved.
What is important is that there is clear momentum. The Tube is the busiest in 18 months. Rail and bus journeys have jumped too and rush-hour congestion is close to 2019 levels. Pressure on workers to return to the office is building amid a growing acknowledgement that being around colleagues has many benefits. Lloyd’s of London boss John Neal is the latest to join the call, arguing that City firms have a duty to the younger generation to restore vitality to the workplace.
Cafes and restaurants, including chains such as Franca Manca and Benugo, have reported a surge in trading. As animal spirits return, deal activity is on track to break records. Even UK bosses, who at times have seemed scared of their own shadow, are on the front foot. Wizz Air’s shock bid for easyjet is testament to a resurgent travel industry, so too easyjet’s decision to shun the approach and raise £1.2bn from shareholders instead. With confidence growing, business investment should follow.
The fundamentals remain sound, too. Unemployment has peaked at 4.7pc, the housing market is expected to avoid a crash, and the Bank of England remains convinced that inflation is transitory.
Supply bottlenecks should ease in the coming months. There are already signs of that with car production jumping after struggling with chip supplies. Labour shortages should be helped by the end of furlough.
The risk is that the Government has already pressed the self-destruct button with a £36bn tax raid that you would expect from a Labour, not Conservative government.
Perhaps the biggest concern of all is the potential for a sudden slowdown in China. If that happens, a global recession must be nailed on.
But for now, talk of the recovery being derailed is premature.
Ikea bets on high street
Ikea’s purchase of Topshop’s empty Oxford Circus store is a small but significant moment in the high street’s battle to survive.
There are too many ghost towns up and down the country. And where stores haven’t been vacated, it is the same tired shops clinging on – bookmakers, charity shops, vape shops, barbers and the obligatory Greggs and Costa branches.
Private equity must accept much of the blame. The entire retail sector is guilty of simultaneously blanketing high streets with chains while seriously underestimating the shift to online. But when times get harder, financial investors are usually the first to cut and run as the costs of large borrowings bite.
Landlords can’t escape criticism, either. Property owners have been getting fat on an archaic upward-only rent model for decades, while retail sales from physical stores have been going in the opposite direction.
True, Ikea’s purchase is a fairly isolated case. It’s a prime piece of property in London’s shopping mecca, so comparisons with the rest of the UK would be misleading. But it is part of a broader shift at the Swedish flatpack giant from its out-of-town warehouses towards city centre stores as it stakes a big bet on the future of urban living.
And it’s not the only one investing in bricks and mortar. Boots recently announced it was opening scores of beauty halls inside existing stores, Marks & Spencer is investing heavily on in-store technology and JD Sports has been snapping up rivals.
It is reassuring that this burst of activity is happening in the wake of the pandemic. Most experts assumed a lockdown online shopping boom would sound the death knell for physical retail. If more retailers keep the faith, there is an opportunity, post-covid, for town centre renewal.
‘There were always going to be bumps in the road after such a massive shock’