The U.K. economy contracted by a record 20.4% in the second quarter, posting the most dismal performance among major European economies. But output jumped a record 8.7% in June. And last week the Bank of England was surprisingly upbeat, predicting an 18% rebound in GDP in the third quarter and an end-of-year jobless rate of just 7.5%, well below where private economists see unemployment heading. What’s going on?
With the government relaxing lockdown measures introduced in March in an effort to halt the spread of the coronavirus, there are signs in recent data that both businesses and consumers are taking tentative steps on the road to recovery. Here, then, are five examples of the economy showing evidence of a brightening future as people learn to live with the virus.
1. The construction industry is exhibiting signs of a rebound. New contracts announced in July include a 500 million-pound ($650 million) wind farm to be built by RJ McLeod (Contractors) Ltd. in the Shetland Isles, Scotland, as well as a new Amazon.com Inc. distribution center in Dartford awarded to ISG Plc. Those projects helped boost the total of new construction orders to 6.3 billion pounds in July, according to figures compiled by Barbour ABI. While that’s still down from February’s 7.6 billion pounds, it beats the 5.99 billion pounds for July of last year, the research firm said this week.
2. It’s been helpful to industry that the Treasury has opened the spigots, with more than a million businesses getting help from government-backed programs. Small and micro businesses have benefited from 35 billion pounds of support through the Bounce Back Loan Scheme, with an additional 13 billion pounds channeled through U.K. lenders via the Coronavirus Business Interruption Loan Scheme. That’s made finance more readily available and eased stress in the country’s money, equity and bond markets, based on a Financial Conditions Index compiled by Bloomberg.
3. Staycations and sunshine have boosted demand for summer dresses and playthings. July’s 2.6% drop in annual consumer spending was the slowest decline since the start of lockdown, according to Barclaycard. Britons spent more on non-essential items, with categories such as sports and outdoor equipment, including camping gear, all standing out last month. John Lewis Partnership Ltd.’s department stores have seen an increase in demand for outdoor toys, with sales of paddling pools up almost 1,000% from last year.
4. There’s no such thing as a free lunch. But Chancellor Rishi Sunak’s “Eat Out to Help Out” initiative, providing rebates so restaurants can offer half-price meals in August, Mondays through Wednesdays, is luring people to shopping streets. Evening visits to all retail destinations, including food and beverage outlets, climbed 12.2% on the first Tuesday and Wednesday of August from a week earlier, according to data provider Springboard. (Monday’s comparison was distorted by heavy rain the previous week.) That underlines the beginnings of a recovery in retail footfall already recorded in July.
5. Britons’ sense of individual financial well-being is intimately entangled with the value of their homes. Lockdown petrified the housing market, prompting the government to scrap a levy on the first 500,000 pounds of the value of properties bought, which effectively makes 90% of purchases tax free. Figures last week from mortgage lender Halifax suggest the tax break, introduced at the start of July and scheduled to run until the end of March, had the desired effect.
A lot could still go wrong for Britain’s economy. Most importantly, a resurgence in infections could stymie plans to reopen schools in September, slowing the return of employees to workplaces and reigniting fear among consumers about leaving their houses to go shopping or visit restaurants and bars. But for now, some green shoots of recovery are starting to bud.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”
Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.
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