Britain’s economy entered choppy waters in September, with the latest indicators suggesting that a summer surge in activity was ending even before Boris Johnson tightened restrictions on socialising and returning to the office.
Ahead of the new measures introduced by the prime minister on Tuesday, growth in consumer spending had slowed sharply this month, with visits to pubs and cinemas down and retail footfall plateauing far below levels seen a year ago.
Bank of England governor Andrew Bailey warned on Tuesday that even without a resurgence in Covid-19 cases, “the harder yards are ahead of us”, while senior Treasury officials now worry about a “very weak” economy in the fourth quarter of the year.
The deceleration in activity is linked both to the rise in cases of coronavirus and the end of special programmes such as Rishi Sunak’s popular flagship “eat out to help out” scheme in August.
The signs that the economy is again struggling contrast with the record-breaking growth seen in July and August. For the third quarter as a whole, gross domestic product is likely to increase around 15 per cent, leaving output 10 per cent lower than its peak at the end of 2019.
Consumer spending remains the bright spot in the economy, with the latest figures from Fable Data, which tracks spending on cards and bank accounts, showing a 4.8 per cent rise in total spending in the week up to September 13, compared with the same week in 2019.
But expenditure in the first two weeks of September grew only half as much as in the last two weeks of August, when holidays and balmy weather led to household spending increasing at double digit rates.
The most recent week’s data also show that footfall in retail parks and shopping centres has declined, underlining the fragile state of consumer confidence as coronavirus cases continue to rise.
Official figures corroborated the weakening trend. A survey by the Office for National Statistics showed that the proportion of Britons going out to eat or drink fell in the week ending September 13, after a summer of rapid increases.
While restaurants showed healthy bookings well into September, with the number of people eating out still generally higher than a year earlier, according to OpenTable, the online restaurant booking website, pubs have suffered a sharp decline in business, according to data from Huq, a company tracking people using their transactions.
Cinemas have also had fewer customers this month after a post-lockdown peak in bookings at the end of August, according to entertainment data company Box Office Mojo.
According to Yael Selfin, chief economist at the consultancy KPMG, the autumn slowdown means that by the end of the year, the economy will be a long way short of its strength at the same time in 2019. She forecast that growth in the final quarter will leave GDP about 6 per cent lower than before the pandemic struck.
Dean Turner, economist at UBS Wealth Management, said the economy was doing better than most people originally feared, but that did not mean the recovery was likely to stay strong.
“The outlook for employment remains bleak, especially with the furlough scheme coming to an end, and economic growth will slow following a sharp initial bounce,” he said.
With the number of coronavirus infections rising, there is also a risk that the government might close non-essential retail, pubs and restaurants, which would have a devastating effect on the health of the economy by the end of the year, according to Samuel Tombs, UK economist at Pantheon Macroeconomics.
He said that even if schools remained open, “the renewed closure of consumer services providers would push GDP 15 per cent below its pre-Covid level, while it lasted, compared to a 5 per cent shortfall” if there are no further nationwide restrictions for businesses, he said.
Fabrice Montagné, UK economist at Barclays, warned: “It’s a critical moment for the UK with headwinds including Brexit, a second wave of C-19 and the wind-down, extension or replacement of emergency measures.”
“After a hesitant summer, all eyes are on the 2021 budget and Brexit,” he added.