Pantheon Macroeconomics

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16th Oct 2020 14:04News

Question of the week: What are Near-Real-Time data Telling us about the State of the U.K. Economy’s Recovery?

A: Many indicators suggest that the economic recovery has stalled since the beginning of September.  Take, for instance, the ONS’ Business Impact of Covid-19 survey.  One of the survey's key questions relates to business turnover; firms are asked to report whether turnover is similar to levels normally expected for the time of the year, or whether it has exceeded or undershot that level by up to 20%, between 20% and 50%, or by more than 50%.  Taking the mid-point of these ranges, we calculate that business turnover recovered merely to 86.9% of pre-Covid levels in the two weeks to October 7, improving only marginally from 86.6% in the two weeks to September 20 and from 86.1% in the fortnight to September 6.

Households have continued to hunker down this month, having already started to pull back from visiting services providers that require close human contact from mid-September.  Our chart above shows Google Trends data on the volume of searches for certain services, with 100 representing their level in January.  In the first 12 days of October, the number of people searching for phrases including the term "restaurant" was 7.5% lower than in September.  On the same basis, searches including "pub" were down 12.6%, "gym" were down 3.9% and "beauty salon" were down 4.3%.  These declines cannot be attributed to seasonality; demand usually is little different for these services between September and October.

At the same time, figures from the Department for Transport point to declining mobility.  In the first 12 days of October, motor vehicle journey numbers were 90% of their level in the first week of February, down from 95% in September.   Similarly, rail passenger numbers have averaged 33% of pre-Covid levels, down from 39% in September.  Separately, data from Springboard show that footfall at retail locations has fallen to 70% of its year-ago level in the week ending October 11, down from a post-Covid peak of about 75% at the start of September.   The trend towards declining household mobility likely will reinforced over the coming days by the new restrictions put in place in many large U.K. cities to stem the spread of Covid-19.

We judge, therefore, that GDP is on course to flatline from September through to December at a level roughly 7% below its pre-Covid level.  The risks to our forecast are skewed to the downside, given that the government might be compelled to force hospitality businesses to close again.  GDP likely would be a further 1.5% below our central forecast, if all food and beverage services businesses were forced to close, pushing output in this sector back down to its level in June, when they were able to offer only takeaway or delivery.  Alternatively, a two-week "circuit breaker", resulting in the closure of all parts of the economy that reopened in July, likely would reduce GDP by about 4.5%, relative to our baseline, during the weeks that it operated.

Samuel Tombs

Chief U.K. Economist

Consistently Right

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