Consumers visited and spent less in UK shops, bars and restaurants in June, according to new data, suggesting the economic recovery lost momentum following a rise in Covid-19 infections.
On Monday, Boris Johnson, prime minister, announced that he intends to press ahead with the removal of all the remaining coronavirus restrictions on July 19 in an attempt to return to normality.
But while economists predict the July reopening could deliver another boost to the recovery, they noted that measures of economic activity such as consumers’ mobility, bank transactions and restaurants bookings, fell throughout June or stalled despite eased restrictions as the Delta variant continued to spread.
“Most indicators suggest the recovery has paused for breath,” said Gabriella Dickens, economist at UK economist at Pantheon Macroeconomics. She noted that the closely watched Markit purchasing manager indices showed an “upbeat picture” for last month, but that “most other timely indicators suggest the recovery is losing momentum”.
The lifting of restrictions, the dropping of mask wearing and social distancing, and the increased awareness of low levels of hospitalisation, “should give the economic rebound new impetus over the summer”, said Martin Beck, lead UK Economist, at the consultancy Oxford Economics.
But Google mobility data for June show that the number of visits to UK grocery, retail and recreation hubs has dropped in recent weeks, after rising sharply from January’s low as restrictions in the UK have gradually been lifted. Similarly, retail footfall declined throughout June to 25 per cent below June 2019 levels, according to the retail consultancy Springboard.
The decline in consumer activity “could reflect increased nervousness as new infections rise”, said Kallum Pickering, senior economist at the bank Berenberg. He added that “even without new restrictions, the caution factor may drag on demand”.
James Smith, at the bank ING, said that he is reducing its third quarter UK economic growth forecast from roughly 2 per cent to about 1.5 per cent following rising infections and softness in non official economic indicators. Dickens said the new wave “will hold back the economic recovery” as more people need to self-isolate and become more cautious about interacting with other people.
Spending on credit and debit cards tracked by the Bank of England has declined since the early days of last month and by June 24 it averaged 7 per cent below its February 2020 levels. In the last week of June, the value of bank transactions, tracked by Fable Data, also declined compared with earlier weeks.
Avinash Srinivasan, analyst at Fable Data, said that high street spending in particular “has continued to track lower in recent weeks”. This is in contrast with rising spending in online retail and food delivery, which suggests consumers opting for more contact-free transactions.
In a sign that alternative economic data are less comprehensive and more difficult to interpret than official data, the weekly Barclays tracker of consumer activity showed that spending stalled throughout June after a steady rise from January’s low, but at higher levels than in February 2020, before the pandemic. Yet, such measures are closely monitored by economists as they provide a more up to date indicator of the health of the economy than official economic data, which are published with a significant time lag.
Restaurants bookings have also declined from their spike after the reopening of indoor hospitality on May 17, according to data from Open Tables. Similarly, spending on restaurants, cafés, pubs, and takeaways fell back below 2019 levels at the end of June after recovering above pre-pandemic levels in the first week of June, according to Tenzo, an analytics and sales forecasting app.
Daily figures from Morning Consult, a consumer intelligence company, show that consumer confidence also weakened in the second part of June compared with the earlier weeks, while government data reveal falling train usage over the same time period.
Maddy Alexander-Grout, chief executive at the loyalty scheme My VIP Card, said that the government’s delay in the final stage of the reopening “had a definite impact on sales in June”. “People’s confidence was hit once again and that translated very rapidly into reduced footfall on the high street,” she added.
Measures of consumer spending have generally been very strong in recent months, consistent with a return to more normal savings behaviour, but the declining trends last month “suggest that reversion may have slowed in June as Covid infections rose”, said Beck.
The increase in job vacancies up to the end of May has also stalled since early June, according to the job site Adzuna. Fabrice Montagné, economist at Barclays, noted that furlough data “show that businesses have virtually stopped calling back workers from furlough, which may suggest that these workers are at risk of losing their jobs now that furlough is tapering off”.
Like other economists, Montagné said that the slow down in high frequency data supports “a more cautious outlook for the economy”.
Smith warned that the key for the economic recovery is how confident consumers will feel about going out and about.
“The latest wave probably pauses the rebound, but given the Delta variant still responds well to vaccinations, the medium-term outlook still looks fairly solid,” he added.