Britain’s economic recovery from Covid-19 gathered pace in the past month, fuelled by consumer spending and people taking advantage of the government’s “eat out to help out” scheme, despite fears mounting over rapid growth in unemployment.
On the Guardian’s latest monthly tracker of economic news since the pandemic spread to Britain this spring, the release of pent-up demand with the easing of lockdown is driving the sharpest rebound in economic growth among the G7 advanced economies, while retail spending has returned to pre-crisis levels.
However, after the country plunged into the deepest recession on record in the three months to June, companies have started making job cuts at a faster pace than during the 2008 global financial crisis, with hundreds of thousands of redundancies announced in the past few weeks alone.
Sounding the alarm as the UK government prepares to remove its furlough job retention scheme this autumn, Frances O’Grady, the director general of the TUC, warned that continued support would be required to avert a jobs catastrophe and long-term damage to the economy.
Writing in the Guardian, she said: “Without urgent action we face the prospect of mass unemployment on a scale not seen since the 1980s.”
Issuing an appeal to the chancellor, Rishi Sunak, she said: “There is still time to stop mass unemployment. We worked together once before as this crisis began: I will work with you again if you are serious at stemming the haemorrhage of jobs.”
The Guardian has chosen eight economic indicators, as well as the level of the FTSE 100, to track the impact on jobs and growth from Covid-19 and the measures used to contain it. Faced with the deepest global recession since the 1930s Great Depression, the Covid Crisis watch will also monitor how the UK is faring compared with other countries.
In the past month, private sector business activity has risen at the fastest pace in seven years as companies race to catch up on work put on hold during lockdown. The increase in demand for services and manufactured goods, which followed the easing of restrictions during the summer, sent the IHS Markit CIPS flash UK composite output index to 60.3 in August, up from 57 in July. On a scale where a figure above 50 indicates expansion, the latest figures suggest the UK is recovering faster than the US, China and the eurozone.
The recovery comes after Britain was officially confirmed to be in the deepest recession since modern records began in the 1950s, with gross domestic product (GDP) falling by 20.4% in the second quarter.
In the deepest decline of any nation in the G7 and the EU, the slump was worsened by the later launch of lockdown and prolonged use of controls to limit the spread of the virus. In a reflection of the deeper downturn for Britain, non-essential shops were closed for just 50 days in Germany, compared with 84 days in the UK.
Retail sales jumped above pre-pandemic levels in July during the first full month since the relaxation of restrictions, as shoppers gradually returned to the high street. The hospitality sector also received a shot in the arm from the “eat out to help out” scheme, with a Monday-to-Wednesday boom at restaurants, pubs and cafes in August. More than 64m discounted meals – the equivalent of one for almost every person in Britain – have been claimed by venues taking part in the scheme so far.
However, significant pressure remains for firms, threatening a sharp increase in unemployment this autumn. Online spending remains higher than before the crisis struck, footfall remains down in several big cities amid the continued absence of office workers, and demand remains weak in certain sectors more reliant on social interaction or travel, such as entertainment, aviation and tourism.
Millions of workers have been brought back from furlough as firms gradually reopen with physical distancing measures in place, with the total number of people on the government’s wage subsidy scheme down from a peak of about 9 million in May to about 4.5 million at the start of August.
However, more than half of the workforce in the arts, entertainment and recreation industry remains furloughed, compared with only 13% still away from work for the economy as a whole, according to the Office for National Statistics.
Despite the government scheme protecting millions of jobs, official figures show almost three-quarters of a million jobs have been shed from company payrolls since March. Economists say unemployment is set to more than double as the government rolls back the furlough scheme this autumn and as firms cut their costs amid weaker levels of demand while Covid-19 remains a risk to health.
Warning that the crisis is far from over, O’Grady said employers would need continued government support to protect jobs and create new ones as the risks from the pandemic gradually recede.
“Mass unemployment is not inevitable. If the government acts fast to keep people in work, our economy will recover faster and our country can build back better,” she said.