Daily Management Review

Temporary UK Economy Rebound Amid Record Govt. Debt


Temporary UK Economy Rebound Amid Record Govt. Debt
According to data published on Friday, the recovery of the economy of the United Kingdom, battered by the novel coronavirus pandemic, is gathering pace even as borrowings by the government went past the 2 trillion pound ($2.6 trillion) mark and amid growing concern of more lob losses in the near future.
According to Purchasing Managers' Index (PMI) data, the growth in retail sales for the month of July kin the country rose above pre-pandemic levels, which was the fastest growth in the number in nearly seven years. Following months of lockdown, many shops reopened for the first complete month in July. 
However, after declining a record 20 per cent in the second quarter because of the pandemic – the largest dorp in GAP for any major economy, there is still a long road for complete recovery for the UK economy.
"The UK is still seeing a V-shape bounce in activity. But ... a hot summer can quickly turn to a cold autumn," HSBC economist Liz Martins said while pointing out to suppression in business activities in the euro zone with the resurgence of coronavirus cases.
The UK Office for National Statistics said that there was a 1.4 per cent year on year growth in retail sales in July which was also 3 per cent more than the levels that were recorded prior to the lockdowns because of the pandemic.
The preliminary composite PMI for August, covering most of the businesses outside of the retail industry, reached its highest level since October 2013.
However, plans of retrenching more employees and making staff redundant are being made currently by employers instead of retaining the jobs and employees following the withering away of the government-subsidised furlough scheme. The scheme is set to come to a complete end in October.
"Scarring from the pandemic and lingering doubts about the sustainability of recovery resulted in a need to cut overheads," said Tim Moore, economics director at IHS Markit, which compiles the PMIs.
According to the forecasts of the Bank of England, rate of unemployment is expected to reach 7.5 per cent by the end of the current year which would be double the level of compared to the most recent data on jobs in the UK. 
Manufacturing orders were "severely depressed", except for a slight improvement in August, said the Confederation of British Industry in a separate statement.
There were signs that the boost from pent-up demand was already fading in the PMI surveys for the euro zone wherein economies and businesses were opened much before they were in the UK.
Retail sale makes up only a portion of household spending. No improvement in consumer confidence since the beginning of July was noted in GfK survey.
Within the retail industry itself, the rebound has not been uniform. While there was a 3 per cent year on year growth in grocery sales and a 50 per cent growth in online sales compared to the levels before the pandemic, the sales volumes in clothing and footwear segment were 25 per cent lower than what they were in the same period a year ago.
Plans for major job cuts have been announced by many store chains including Marks & Spencer, Boots and John Lewis.
A slide in tax revenues on the public finances and the impact of increased public spending was also disclosed by Friday's data. In July, government’s net debt for the current financial year surpassed the 2 trillion pounds mark and the total GDP of the country, a first for the country since 1961.