Is the UK Economy Showing Signs of Tentative Recovery?

Having written last week about the dire economic choices facing Italy I find myself heartened by news coming out of the United Kingdom, perhaps the European country worst hit by the Covid-19 plague.

As reported in the Financial Times this week, there appear to be signs, albeit tentative ones, that the UK economy is not doing as badly as should be expected at this point. Now there are plenty of tales of economic apocalypses out there currently, so when the FT says there is some “good news” out there instead I tend to listen.

Job vacancies are appearing; household spending is no longer declining, allied with the really good news that many businesses are reopening with positive economic activity once more restarting. There are more cars on the road. How do we know? Well, petrol sales are up. And, perhaps most surprising of all, the newly reopened estate agents are seeing a real flurry of activity and interest since restriction were lifted on their trading from 11 May.

The property market’s various websites in their first week back since reopening reported a weekly 88% jump in demand, that is defined as any browsing on the website followed by an inquiry. Measures of market activity, however, such as sales agreed, offers made, are still just a tenth of typical sales volumes at this time of year – traditionally spring is the sector’s busiest season.

But there are other factors at play here. Sadly, divorce lawyers have been inundated in the past weeks. This is the painful if predicable outcome of enforced isolation for some couples. But this is good news for the property market. It means that properties come on to the market but the market for those properties is in effect doubling. These separating couples now need their own homes while selling their former residences.

One quote in the FT article made me spill my morning coffee. It came from David Owen, economist at the financial company Jefferies. He said: “Everything points to a slow, painful recovery, but we still think a recovery is under way.” Interesting, to say the least.

Now, I am not so naive as to think that one the biggest economies in the world is going to return to how it was before Covid-19. Not a bit of it. The overall picture here in the UK is one of depressed levels of business activity across all sectors, with an extremely dire outlook for certain sectors. Two such sectors come to mind: leisure and travel. To some extent their fates are intertwined. Previously both were solid areas of economic growth over the past decade; however, these two sectors now look to be, in the short term at least, in terminal decline. The reason is not so much a market adjustment as a lifestyle change, one that many are making across the Western World at this time. I’m more confident of leisure than travel in the longer term though. People are still going to want to be amused, it’s just they don’t want to travel to enjoy their free time any more. So the likes of Netflix and the rest who deliver entertainment to your home have done very well out of this pandemic – just take a look at the FANG share price before and after the pandemic struck. I expect that the purveyors of home entertainment will continue to do well for the rest of this year.

Transport, be it national or international, appears to be travelling in the opposite direction, however. UK government talk of quarantine has not helped any attempts at recovery especially so for airlines.  As I said earlier drivers are back on the roads of the UK, but public transport has seen no such uptick.  For London and the Southeast in particular there will be concern that that population’s former confidence in travelling on trains and buses has not yet returned. It is stating the obvious to say that London’s economy just cannot function without a sustainable and well-used public transport network.

The most incredible sign of a fledgling recovery are those rising job vacancies. During the pandemic UK 8.4 million people were furloughed by their UK employers. Alongside this, depressingly, official statistics reported a record monthly increase in people claiming unemployment benefits in April 2020. Yet, in May 2020 job vacancies rose by 9%. Things have not only stabilized but are, seemingly, moving in the right direction.

Alongside this household spending is increasing, slowly, but it is increasing none the less. In April, UK household spending plummeted by 40%. In May this decrease has stopped, and in June we may see spending begin to inch upward.

I’ve kept the best news to last though. It is that business activity has started again across the UK. Data from the Office for National Statistics show about 81% of companies began operating in the two weeks to May 17 — up from 75% in the two weeks to April 5. With business activity from small and medium-sized enterprises increased by 30% since that low point in early April.

So there are jobs being created, business is back doing business, property is beginning to move, as too are British motorists, all in all a good, albeit tentative, start, but a start nonetheless. Allied to this there is the UK government’s determination to get British life back to normal as soon as it can in the coming weeks; therefore, in the months ahead, I expect that all of these indicators will continue to show positive signs of an economy coming off its own form of ventilator.