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“With further rises in unemployment in the coming months all but inevitable as the furlough scheme unwinds, this is just the lull before the storm,” said Ruth Gregory, senior UK economist at Capital Economics.
Constant job losses
One in three British companies plans to axe staff before the end of September, according to a survey of 2000 companies this week by the Chartered Institute of Personnel and Development.
There’s an almost daily drip-feed of news about job cuts: Jaguar Land Rover and other car makers; British Airways and other airlines; the book chain WH Smith; the department stores Harrods, Debenhams and John Lewis; high-street shops like Boots, Next and Marks & Spencer; Royal Mail; and the BBC and several major newspapers.
“Some parts of the economy are undoubtedly showing great resilience but clearly there are going to be bumpy months ahead and a long, long way to go,” British Prime Minister Boris Johnson told reporters on Tuesday (Wednesday AEST).
Mr Johnson’s government recently announced £30 billion of fresh spending to support the post-furlough labour market, ranging from incentive payments for employers to retain workers through to a discount scheme for customers at restaurants.
It has also budgeted £2 billion to keep the household building sector afloat through a “green homes grant” that would subsidise people to make their houses more energy efficient.
The economy is unlikely to drive jobs growth without government support, at least in the short term. In ONS data due late on Wednesday (AEST), economists expect a slump in second-quarter GDP of about 20 per cent.
A few bright spots
The Bank of England expects the economy to contract 9.5 per cent this year before performing a 9 per cent concertina-style upswing in 2021. But it’s worried that the sour labour market could undermine this outlook.
One of the few bright spots in the British economy is the retail sector, which has staged a recovery from its lockdown doldrums.
The British Retail Consortium reported this week that sales jumped 3.2 per cent in July, and were actually 4.3 per cent more than the same month in 2019. But the growth is all in food and online retail, while shopping precincts remain depopulated.
“Many shops continued to struggle as footfall was down, with many people still reluctant to go out, and fewer impulse purchases,” said BRC chief Helen Dickinson, about the July figures.
“The strongest performance came from food, furniture and homeware, as consumers increasingly invest in their time at home. However many shops, particularly in fashion, jewellery and beauty, are still struggling to survive.”
The government hopes that the resumption of schooling in September will mark a big step forward in normalising the economy, allowing people to return to the office and drop back into the groove of their old consumption habits.
But Joanne Frew, employment head at law firm DWF, said the reopening of schools might also spur “a sharp increase in people looking to return to the job market”, which could hit the employment numbers.
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