Hopes of a rapid recovery in Britain’s economy from the coronavirus lockdown have been boosted by a summer rebound in retail sales and the strongest monthly growth in business activity for five years.
The latest figures from the Office for National Statistics showed retail sales rose by 13.9% in June compared with May as pent-up demand among consumers returned overall spending close to pre-pandemic levels.
A health check on business activity from IHS Markit and the Chartered Institute of Procurement and Supply also showed Britain’s private sector economy returned to growth in July as clients and customers returned to spending and businesses were able to open their operations as staff returned.
The release of pent-up demand helped the IHS Markit flash UK composite purchasing managers’ index (PMI) to reach 57.1 in July – a 61-month high – up from 47.7 in June. A reading above 50 indicates expansion.
UK private sector PMI
Despite the pick-up raising hopes for a quick escape from the Covid-19 recession, economists said consumer spending remained weak in several areas and warned growth could falter later in the year as job losses begin to mount. The UK remains on course for a deep recession, or two successive quarters of negative growth, after GDP fell by 2.2% in January to March. According to the latest data for the second quarter so far, GDP fell by 20.3% in April and rose by only 1.8% in May – with June’s growth number not expected to be strong enough to keep the quarter out of negative territory.
About a third of businesses surveyed by IHS Markit reported job cuts in July, while there were widespread reports that extremely weak demand had resulted in prolonged use of the government’s furlough scheme.
Chris Williamson, the chief business economist at IHS Markit, said: “While the recession looks to have been brief, the scars are likely to be deep. Even with the July rebound there’s a long way to go before the output lost to the pandemic is regained.”
The ONS said retail sales last month had edged closer to pre-lockdown levels, falling by 0.6% compared with February when all shops were still open. Online spending, DIY and food sales fuelled the increase in spending in June, with shoppers continuing to buy more food than usual while cafes, restaurants and pubs remained shut last month.
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Electrical, hardware and furniture sales also snapped back to similar levels as before the pandemic, as home improvements during lockdown helped boost consumer spending.
UK retail sales
However, despite the boom elsewhere, many shops continued to struggle from low demand. Clothing sales remained depressed despite the relaxation of lockdown restrictions in the middle of last month. Across the high street, the ONS said sales in non-food stores remained about a third below pre-pandemic levels.
The figures come amid intense pressure for retailers, as growing numbers of high street chains announce job cuts and store closures, including John Lewis, Boots and Marks & Spencer.
Footfall in local shopping hotspots has not increased as much as hoped, despite the reopening of hospitality and leisure venues earlier this month. Mobile phone location data analysed by Google shows footfall in UK retail and recreation outlets has risen in recent weeks, although is still down 35% compared with pre-pandemic levels.
As the high street reopened, online spending as a proportion of total sales fell slightly – dropping from 33.3% in May to 31.8% in June. However, the ONS said online sales were still significantly higher than before the pandemic, when they accounted for about 20% of overall spending.
Ruth Gregory, a senior UK economist at the consultancy Capital Economics, cautioned that retail sales were unrepresentative of the wider economy. The amount consumers spend on physical goods only accounts for about a third of total household expenditure – with far more spent on housing costs and services.
“Since the [retail] sector has benefited disproportionately from online spending and a switch from other types of spending, this overstates the extent of the recovery in the wider economy,” she said.
Private sector businesses across the eurozone also returned to growth for the first time last month, according to the flash IHS Markit eurozone composite PMI. The index rose further in July from the all-time low of 13.6 in April, climbing from 48.5 in June to 54.8.
This was the first reading above 50.0 since February and indicated the largest monthly gain in output since June 2018.
