UK economy springs back!

Britain’s economy leapt back to life at the height of summer as consumers rushed out of lockdown to start spending freely — attracted by the government’s incentives to visit pubs and restaurants.

After months of staying home and tightening their belts, data yesterday showed shoppers spent more in July than before the pandemic hit, with businesses also reporting stronger activity in August.

Although the patterns of spending have not been uniform across the UK, official figures were boosted by a combination of households taking their holidays in Britain and the relaxation of lockdown measures for non-essential shops and the hospitality sector since mid-June.

The upbeat spending and activity data, however, could not mask the damage wrought by the coronavirus crisis on the public finances. Central government has raised almost £200bn of finance since April, pushing state debt above £2tn for the first time.

Chancellor Rishi Sunak said the difficult outlook for the public finances would limit the extent to which the government could keep borrowing and spending. “Today’s figures are a stark reminder that we must return our public finances to a sustainable footing over time, which will require taking difficult decisions,” he said.

But he will be pleased that the UK’s economic recovery now appears to have firm foundations — as long as the UK does not see the resurgence of Covid-19 that has haunted many US states and European countries such as Spain and France.

Retail sales volumes rose faster than expected in July, increasing 3.6 per cent from June and beating figures from a year earlier, the Office for National Statistics reported yesterday.

Jonathan Athow, Deputy National Statistician at the ONS, said retail sales had “regained all the ground lost during the height of the coronavirus restrictions as more stores open for trade”.

Separate figures from IHS Markit showed that business activity stood at its strongest level in almost seven years in August, according to the latest Purchasing Managers’ Composite Index, rising to 60.3 from 57 in July. By contrast the eurozone’s August PMIs fell to 51.6 from 54.9 in July after a spike in virus cases damped the bloc’s economic rebound.

Tim Moore, Economics Director at IHS Markit, said August’s data showed the UK’s recovery has gained speed across both the manufacturing and service sectors, adding that staycations and the “eat out to help out” scheme had supported growth in August.

The strong spending has come as a boon to retailers, but there was still sign of pain on the high street in July as consumers increasingly become accustomed to internet shopping. Online sales volumes were up more than 50 per cent compared with pre-crisis levels in February, the ONS said.

Beyond food stores, sales volumes in high street shops were still 6.6 per cent lower in July than in February. Clothing retailers remained the hardest hit, with July volumes 26 per cent below February levels.

Separately, figures from HM Revenue & Customs published on Friday showed that the number of people on the government’s job retention scheme peaked at just below 9m in May and fell to 6.8m by the end of June.

HMRC’s estimate of the number still furloughed at the end of June was higher than many surveys had predicted, suggesting that the recovery up to that point, after restaurants and pubs reopened, had been slow.

Torsten Bell, Director of the Resolution Foundation, a think-tank, praised HMRC for publishing for the first time the trajectory of furlough claims and said that, since June, surveys suggested “the number fully furloughed fell faster so we’ll be well below 6.8m now”.

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