English shoppers return – but economy faces long road to recovery
Stock markets gain on recovery hopes
Financial markets have risen in the past month amid rising hopes of a global economic recovery, as more countries around the world ease lockdown restrictions. Share prices did briefly slide into reverse in mid-June on fears of a second wave in China, as Beijing imposed travel restrictions. But the FTSE 100 has gained almost 200 points in the past month to reach 6,186, gradually recovering ground lost in March, when it collapsed further than any time since Black Monday in October 1987.
Falling petrol prices sink inflation
Cheaper petrol sent inflation tumbling to a near four-year low of 0.5% in May, more than compensating for higher food and drink prices.
In a reflection of depressed demand for goods and services caused by lockdown, the consumer price index measure of inflation fell from 0.8% in April, moving further away from the 2% target set by the government for the Bank of England to achieve. Threadneedle Street added a further ?100bn to its quantitative easing bond-buying programme, taking it to ?745bn in total, in a bid to lower borrowing costs for businesses and households and help stimulate growth.
Business surveys point to V-shaped recovery
Hopes of a rapid economic recovery as lockdown restrictions are lifted were boosted this month by surveys of business activity revealing a record rise in June. In the UK, the purchasing managers’ index, compiled from business surveys by IHS Markit and the Chartered Institute of Procurement and Supply, rose from 30 in May to 47.6 in June.
Although that is still below the 50 mark that separates economic growth from contraction, the reading raised hopes for a rapid bounce back. The US economy also continued to shrink this month, but at a much slower rate than in May. Analysts said a similar pickup in eurozone business activity suggested the Covid-19 recession could end this summer.
Unemployment benefit claims soar
The number of people claiming unemployment benefits jumped 23% to 2.8 million last month, reflecting a continued rise in job losses across Britain as the coronavirus crisis forces thousands of businesses to close.
Figures published by HMRC also showed a dramatic decline in the number of people on company payrolls, falling by 612,000 between March and May. With companies freezing their hiring plans given the economic uncertainty, the number of job vacancies also fell to the lowest level on record.
Shoppers return to the high streets
Shoppers flocked back to the high streets in England as non-essential shops began to reopen. Figures from the research group Springboard found that footfall in the week starting 15 June was up 45% on the previous week, although shopper numbers still remained significantly down on the same period a year ago.
Official figures for consumer spending in May revealed a 12% jump in sales on the month, spurred by sales at DIY stores and garden centres. However, retail sales in the three months to May were 14% lower than in the three months to February, before lockdown began.
Borrowing pushes national debt to 60s levels
The government borrowed a record ?55bn in May – about the same amount in a single month as planned for the whole year before Covid-19 struck – as falling tax income and soaring spending to cushion the economic blow battered the public finances. Britain’s public debt – the sum total of every annual deficit – rose to become larger than the size of the country’s economy for the first time since 1963.
The total level of debt increased by ?173bn over the last year to reach ?1.95tn, or 100.9% of GDP. Rishi Sunak, the chancellor, is preparing to scale back the emergency support offered to businesses and workers at the onset of the crisis. However, several former chancellors, including his immediate predecessor Sajid Javid, have urged him to focus on growing the economy, rather than cutting the support too quickly.
GDP plunges by record 20.4% in April
Britain’s economy shrank by a record 20.4% in April as the first full month of the coronavirus lockdown brought business and social life across the country effectively to a standstill.
Official figures showed record declines in economic activity across the board, with service sector activity shrinking by almost a fifth as shops closed and car sales evaporated. Air transport shrank by 92.8% – the biggest fall of any sector. Over the three months to the end of April, GDP fell by 10.4%, the sharpest decline in records dating back to 1955; the collapse surpassed the industrial strife of the 70s, recessions in the 80s and 90s and the 2008 financial crisis.
House prices continue to fall
The full impact of lockdown measures led to a dramatic drop in activity in the UK property market in May, leading house prices across the country to fall for a third consecutive month.
Although more modest than a sharper decline in April, the average value of a home fell by 0.2% in May, according to figures compiled by Halifax, Britain’s biggest mortgage lender. The relaxation of restrictions in England is expected to increase the number of transactions in the property market, although experts said prices would remain under pressure in the coming months.
And another thing we’ve learned this month … Sunak prepares to wind down furlough scheme
The chancellor is preparing to announce temporary tax cuts and spending measures to reboot the British economy in a major spending statement due in early July.
His measures will come as the government prepares to wind down its emergency furlough wage subsidy scheme from the end of next month. The number of jobs furloughed has reached 9.2m, with a total of ?22.9bn claimed by 1.1m employers. Figures published this month show more than a third of employees in some towns have been furloughed, exposing the uneven impact of the crisis on different sectors and regions of Britain. Crawley in Sussex, which sits next to Gatwick airport, had 33.7% of employees furloughed last month while Cambridge had just under half that proportion, at 17.4%.
Chart for furlough numbers
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