No sooner had the UK been placed under lockdown, than the attention turned to the recovery. It was inevitable that the economy would suffer, but to what extent. So far, government debt has reached £2 trillion, for the first time. This figure means that the UK owes more than 100% of its output, the highest level since 1963. The true cost of the government’s extraordinary measures to cushion the economy through COVID-19 is now being realised. This is not likely to be the final tally as many initiatives announced by the government are still running, and public borrowing remains high. But surely the UK Chancellor’s ‘magic money tree’ has been wiped out and the government will be hoping for that economic bounce-back.
Whilst the months of May and June have provided a welcome uplift in GDP, following the easing of lockdown measures in the latter part of June (8.7% rise, the severe drop in April has pushed the UK into a recession). A staggering 20.4% drop in GDP for Q2, is a new one for the record books. Signs of a v-shaped recovery have disappeared as the mountain to climb just got bigger.
SPEND, SPEND & SPEND
Both businesses and individuals hunkered down during the lockdown and spending other than for necessities reduced to a trickle. A resumption of ‘normal daily life’ could start to see an increase in spending whether that is from the £85 billion that UK companies hold in cash balances or the £354 billion worth of disposable income. Easier said than done, as we head deeper into a recession, both businesses and households will want to preserve as much cash as they can.
However, our movement, which was severely curtailed during Q2, is only now starting to see a rise. The UK Government’s Eat Out to Help Out scheme has proved to be a success as a stimulus for people not only to support the hospitality industry but facilitate a return to our workplaces in towns and cities. The latest data from Springboard shows that footfall is increasing four-fold each week since Q2 with London and the South East showing a greater increase. A rise in the movement has translated into an increase in retail sales of 2% between June and July, taking the value and quantity of sales in the UK higher than in 2019.
END OF FURLOUGH
However, a rise in spending could be short-lived as one of the government’s flagship COVID initiatives, the Job Retention Scheme (furlough) is due to close at the end of October. With 1.2 million businesses and just over 9.6 million employees’ part of the scheme at its peak, their support net that has paid millions of wages throughout the pandemic is to be taken away. This will no doubt place significant cash pressures on businesses and workers, one that will filter through into rationalising spending priorities.
In many cases, the support net might well have a been temporary reprieve, and the expectation is that unemployment will rise upon the closure of the furlough scheme. Due to market inactivity, the unemployment rate has not changed and remains at 3.9%, at 1.34 million people, a rise of just 9,000 people from a year earlier. The focus will be on how this number will fare in the run-up to October ahead of the final furlough month. But a severe dent in the number of people employed around the UK will have repercussions not just for government spending but all industries.
GROWTH IN A CRISIS
Some industries appear to have excelled during the current crisis and there are sectors that may well be able to sustain growth throughout the pandemic. Information and communication firms, financial and insurance services, and the public sector have all been positive contributors to the GDP in Q2. The healthcare sector is one which is also expected to weather the storm, stemming largely from a renewed interest in our personal wellbeing. However, we could see several other sectors start to carry the mantle, especially as the government commitments to infrastructure investment in technology, aerospace, and education, to name just a few, are granted.
ALL CYLINDERS NEED TO BE FIRING
The UK economy should be seen as an ecosystem, where all people, businesses, and industries are intertwined and rely on each other at some point. Economic drivers such as consumer spending, investment, trade, employment, and governmental support will carry the UK through this crisis. The greatest asset that businesses have is their talent and consistent efforts to lead and nurture it will ensure continuity. All cylinders need to be fired up to power the business through the latest crisis.