Retail

Consumers’ reluctance to spend puts brake on UK recovery


The UK’s economic recovery appeared to stall in the final week of May, with consumers reluctant to spend, despite the easing of lockdown measures.

High-frequency indicators show that spending, mobility and confidence were little higher after Boris Johnson encouraged people to return to work on May 11 than they were at the height of lockdown in mid-April.

The lacklustre recovery will add further pressure for the Treasury to plan an economic stimulus in the weeks ahead.

Although businesses have reopened and real-time data suggest the economy has improved significantly since the trough in early April, the upswing so far has been shallow.

“We can expect the recovery to be gradual in the coming few months,” said Jack Leslie, economist at the Resolution Foundation think-tank.

Column chart of Annual change in weekly expenditure (%) showing Household spending improvement stalled towards the end of May

All high frequency figures are experimental, with uncertain links to official data, but the latest signs suggest that economic activity throughout May remained far below the same month last year.

In the final week of the month, household spending was 18.5 per cent lower than in the equivalent week of 2019, according to Fable Data, a consultancy which tracks spending levels across a large sample of data from bank accounts, credit and debit cards and fintech companies.

Spending in grocery stores stayed at the high levels they have enjoyed during the lockdown, compared with the same period last year, but was overtaken in terms of annual spending growth by hardware shops and garden centres. Suraj Gohil, product director at Fable Data, said the sector had enjoyed “a decent pick up in spend” over the past month.

Fabrice Montagné, economist at Barclays, said Barclaycard figures showed a stronger bounce, highlighting the uncertainty that comes with experimental data.

But most real-time data this week has supported a cautious view of the UK recovery. According to the latest flash survey, taken between May 20 and 26 by GfK, the market research company, consumer confidence has deteriorated, dropping two points to a level of -36, the lowest it has been since the pandemic started.

Chart showing no improvement in UK consumer confidence, index score

“With no sign of a rapid V-shaped bounceback on the cards, consumers remain pessimistic about the state of their finances and the wider economic picture for the year to come,” said Joe Staton, client strategy director.

Much of GfK’s data was collected during the scandal over the trip to northern England by Dominic Cummings, the prime minister’s closest adviser, at the height of the epidemic. The revelations that Mr Cummings broke lockdown rules may have hit confidence levels.

Some other data, however, suggest progress in the last week of May. Mobility figures from Google maps show a gradual recovery in the number of trips to workplaces. By the end of May they stood at roughly half pre-virus levels — although the UK lags significantly behind other large European countries.

Line chart of % change on 14-day average of people transfers compared with pre-crisis average showing UK's travel to work lags behind peers

Spending on big-ticket items remains depressed, however. Car sales dropped 89 per cent in May compared with the same month last year, according to data from the Society of Motor Manufacturers and Traders, reflecting the closure of England’s car showrooms until June 1.

Yet there were signs that people were feeling frustrated with their inability to buy and yearned to spend again as restrictions on retail are gradually removed this month.

According to data from SimilarWeb, a company tracking unique visitors to websites, Britons are increasingly browsing car market and home furnishing websites as the focus shifts away from buying food. The drop in web searches for accommodation, travel and airlines has also eased.

Visits to car market and home furnishings websites increase as lockdown restrictions ease. Line charts showing % change in weekly unique visitors from previous year

The increased searches, along with the gradual loosening of restrictions on movement, provide some hope that the economy will show a more sustained recovery in June than last month, with businesses that reopened in May beginning to trade at more normal levels.

About one in three companies that took the Office for National Statistics’ survey of the business impact of coronavirus after May 27 said they intended to restart trading over the next month. Of businesses planning to reopen, 33 per cent of their workforce is expected to return from furlough, the survey said.

But economists remain cautious about predicting a rapid bounce in activity. The early evidence is “pointing to nothing more than a very gradual recovery after April’s low point”, said Ruth Gregory, senior UK economist at Capital Economics.



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