The UK economy may have shrunk by slightly less than initially thought in the face of the coronavirus pandemic, but it has still suffered the worst recession since records began.
In fact, the economy is now 21.8 per cent smaller than it was at the end of last year, and has yet to make up the ground it lost during the height of the pandemic.
But there is much more to the economy than headline Gross Domestic Product figures and it has many moving parts, meaning it throws up all manner of contradictions.
With that in mind, This is Money has compiled some charts which shed some further light on the impact of the coronavirus on the UK economy, household finances and labour market so far.
Pandemic economy: The UK economy contracted by close to a fifth between April and June, but there are plenty of other figures which offer insight
1. Britain wasn’t working
While Britain’s unemployment rate grew to its highest level in two years in July, with the headline rate at 4.1 per cent, official figures from the early months of the pandemic barely captured the dramatic impact it had on the labour market.
Even as recently in the crisis as June, the official unemployment rate had barely budged, although with the caveat that those out of work were not really looking for it.
This was largely due to the Government’s Job Retention Scheme, which at its height at the end of July saw as many as 9.6million people furloughed. They weren’t working, but were still employed.
Instead, labour market analysts have recommended looking at the number of hours being worked each week to give a true insight as to how much the coronavirus pandemic upended Britain’s workforce.
While unemployment figures barely budged in the months Britain was in lockdown, the number of hours those in the UK worked collapsed during the pandemic by almost 200m
From the end of February to the end of June, the number of hours worked each week by those aged 16 or over had fallen by almost 200million, with the hospitality sector unsurprisingly the hardest hit.
Simon French, chief economist at investment bank Panmure Gordon, said as an indication of the state of the world of work after the end of the furlough scheme the figures were ‘not promising’.
Although this recovered a little in July, even then Britain was collectively working fewer hours each week than it was at the end of 1996, or an average of 26.3 hours a week per person, which French said was ‘still a terrible picture.’
Nye Cominetti, senior economist at the think tank the Resolution Foundation, said: ‘Official data shows that lockdown has precipitated an unprecedented fall in output.
‘No wonder the economy shrunk by a third.
‘The number of hours worked has since started to recover as people have moved off furlough and back to work.’
But even if the figures are slightly out of date, many of Britain’s largest companies have announced thousands of redundancies over the last few months and there are fears the unemployment rate could climb into double digits.
‘With unemployment now rising, and around 2.7million workers still furloughed with less than a month to go until the Job Retention Scheme ends, the risk is that the worst of Britain’s jobs crisis is yet to come’, Cominetti said.
2. Households save record sums
The extent to which Britain became a nation of savers during the coronavirus lockdown was revealed by the Office for National Statistics on Wednesday.
Between April and June, out of every £10 in disposable income households had, they saved £2.91, an all-time record.
The previous record had been set 27 years ago in 1993, and even then the savings ratio was only 14.4 per cent.
Bank of England figures found households saved £54.6billion in the second quarter of this year, more than three times the average saved a month before the coronavirus, although more recent borrowing, saving and spending figures suggest this trend has not continued as shut down parts of the economy have reopened.
Households saved 29.1% of their disposable income in the lockdown months of April to June, an all-time record. It was more than double the previous record of 14.4% set in 1993
The ONS said a corresponding 23.6 per cent fall in household spending was ‘driven by falls in spending on restaurants and hotels, transport, and recreation and culture as households have been unable to spend on these types of social consumption.’
Refunds for cancelled holidays, lower transport costs and fears of unemployment also had an impact, but it was really the closing down of large swathes of the economy which led millions to save, many of whom did so for the first time.
And with an economy heavily reliant on consumer spending, it was perhaps no surprise that so much money being stashed away went hand-in-hand with a record fall in UK GDP over the same three-month period.
The question is: what happens next. The ONS ratio includes both involuntary saving, money saved which couldn’t be spent, and voluntary saving, which likely took place as households battened down the hatches in anticipation they could lose their jobs as a result of the pandemic.
With recent figures suggesting non-essential spending rebounded to close to pre-coronavirus levels, or even increased on them, by the end of summer, it suggests that people largely saved because they couldn’t spend during the lockdown, but many will still be hoping to keep the habit going.
3. How the Government helped push down prices
At the start of the pandemic there was debate over which way prices would go.
Would the vast sums of money being printed by central banks and handed out by governments lead to a surge in inflation; or would the demand being sucked out of the economy due to the pandemic actually lead to deflation and to prices falling?
The answer so far seems to have been neither. As difficult as it has been at times for Britain’s national statisticians to collect prices during the pandemic, consumer price inflation fell between April and May, surprisingly rose to 1 per cent in July, and then fell again in August, to a five-year low of just 0.2 per cent.
The CPI measure of inflation dropped from 1% in July to just 0.2% in August, the lowest rate since December 2015
But it was the nature of the fall in inflation two months ago that was especially noteworthy.
The Government’s ‘Eat Out to Help Out’ discount scheme was already one of the best-known and unique policies of recent years, but it had the effect of almost singlehandedly reducing prices in cafes and restaurants, which were 2.6 per cent lower than August 2019.
It meant the cost of items group under ‘restaurants and hotels’ fell 2.8 per cent year-on-year for the first time since records began in 1989.
Continued restrictions on international travel also meant plane tickets got cheaper between July and August 2020. In another sign of how the pandemic had upended the usual rules, they had previously risen by 22.4 per cent over the same period last year.
While it is difficult to forecast where inflation is going next, economists believe the aberration that was Eat Out to Help Out would see August prove a low point, but that cautious consumers and a still weak economy could mean price rises don’t come close to the Bank of England’s 2 per cent target anytime soon.
4. Retail sales rebound, but we’re still shopping online
It may have been a boom time for supermarkets in the early months of lockdown as spending on essentials soared, but non-essential shops were shuttered on 23 March along with much of the rest of the country.
Unsurprisingly, sales have rebounded since shops were allowed to reopen in June, with the latest figures from the Office for National Statistics finding they have grown for four consecutive months and were up 4 per cent on pre-pandemic levels in February.
Retail sales were 4% higher in August than they were in February, as consumer spending continued to recover following the nationwide lockdown
However, dig a little deeper into the figures and there are signs the pandemic has accelerated changes in the way in which we shop.
Footfall, compiled by the data provider Springboard and the Department for Business, Energy and Industrial Strategy, remains just below four-fifths of pre-pandemic levels, while it remains even lower on Britain’s high streets.
However footfall data suggests that the number of Britons visiting high streets and shopping centres has still not fully recovered
Instead, the main beneficiary of Britain’s increased spending over the last few months has been online shops.
Springboard’s Diane Wehrle told This is Money that ‘we are seeing a change in the way in which people are shopping now’.
Sales at online and other retailers with no store presence were up 28.6 per cent between January and August compared with the same eight months last year and were nearly 39 per cent higher than pre-pandemic levels seen in February.
While they were obviously given a head start by the lockdown forcing shops to close, recent footfall and sales data suggests that Britons have been in no rush to head back to high streets, especially those in central London and other major cities.
Diane Wehrle added online shopping had been forecast to account for more than a quarter of spending by 2028 before the pandemic, but it had reached 28 per cent following the coronavirus, which she said had ‘accelerated that trend’.
Instead online shopping has continued to benefit, even if online sales fell in August. It has been suggested the coronavirus pandemic has accelerated changes in shopping habits
She there had been ‘significant shifts’ in shopping patterns, with many people shopping online for the first time and people continuing to be cautious about venturing out to busy high streets and shopping centres.
However, she added that high streets in smaller market towns, which had seen a much higher rebounding in footfall compared to those in major cities, had been a ‘success story’, and said the situation was not bleak for all physical retailers.
5. House prices hit an all-time high
What is happening in Britain’s housing market? That is sure to be a question many are asking as property prices, in the midst of a pandemic and a recession estimated to leave millions out of work, hit an all-time high in September.
Britain’s biggest building society Nationwide said the average UK house price rose above £225,000 for the first time ever in its latest September index, rising 5 per cent year-on-year to £226,129.
At the same time the Bank of England found 84,700 mortgages were approved for home buying in August, the most since October 2007, although far fewer have been approved in the first eight months of this year compared to 2019 due to the property market being shut down during lockdown.
House prices rose at their highest level since 2016 last month according to Britain’s biggest building society, but is the recent boom really sustainable?
Much of this is the release of pent-up demand following the reopening of the housing market in May, with the Government’s Stamp Duty holiday for buyers of properties worth up to £500,000 until next March acting as further stimulus.
Nationwide’s chief economist Robert Gardner added: ‘Behavioural shifts may also be boosting activity as people reassess their housing needs and preferences as a result of life in lockdown’, with estate agents reporting bigger family homes outside of major cities were in demand, as were properties with more space.
While first-time buyers have found themselves locked out of the rush for homes as banks have slashed low deposit mortgages fearing a fall in property prices, some believe this mini boom, with prices rising for three successive months, may have peaked.
Howard Archer, chief economist at the forecasting group EY ITEM Club, said the current state of house prices would prove ‘unsustainable’ and believed prices could fall by 5 per cent by the middle of next year.
The number of mortgages approved to buy a home was at its highest since 13 years in August, as pent-up demand continued to swamp the property market
He said: ‘The housing market is likely to come under pressure over the final months of 2020 when there is likely to be a marked rise in unemployment as the furlough scheme draws to a close in October.
‘While the Chancellor’s Job Support Scheme announced in late-September should have some degree of limiting impact on the increase in unemployment in late-2020, a significant rise in unemployment still looks more likely than not.
‘This will not only adversely affect the fundamentals for house buyers, but also likely fuel caution on committing to buying a house. There is also likely to be a fading of the pent-up demand effect on activity.’