An Ikea staff member serves coffee to customers queueing at one of the retailer’s branches in London. Trips to shopping centres are still 60 per cent below normal levels © FT Montage/Getty

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Business activity in the UK is gradually increasing as the country eases out of lockdown but the economy is recovering at a slower pace than its European peers, which have relaxed coronavirus measures more rapidly.

The latest high-frequency data for June suggest the UK recovery from a trough in April has been hampered by the continued spread of the virus and government restrictions on the opening of shops, pubs, restaurants and schools.

Activity has been growing from a low in April, with higher retail and consumer spending, improved demand for housing, increased mobility and more businesses reopening. But the improvement has been gradual, with the UK lagging behind other main European economies — especially Germany. 

Andrew Goodwin, chief UK economist at Oxford Economics, said the slower recovery was “a reflection of the fact that Germany is further along the road in terms of relaxing its lockdown”, which would result “in a much better economic performance for Germany than the UK in the second quarter”.

In early June, trips to shopping centres, restaurants, bars and entertainment centres were stuck at more than 60 per cent below pre-coronavirus levels in the UK, the worst performance of any big European economy.

In Germany and the Netherlands, the figure rose to 20 per cent below pre-crisis levels in the same period, and to 30 per cent below pre-crisis levels in France and Italy. These are up from a reduction of up to 90 per cent at the peak of the lockdown.

There are fewer trips for shopping and entertainment in the UK, % change from pre-coronavirus average, 7-day rolling average

The difference largely reflects the fact that restaurants and non-essential shops have been open for some time in most European economies, with restaurant booking returning to normal levels in Germany in early June. In the UK, these sectors will not be fully open until late June at the earliest.

Other parts of the economy, such as hairdressers and beauty centres, remain closed in the UK, while they are open with social distancing measures in many parts of Europe.

“The signs of improvement in the UK so far have been patchy and uneven,” said Ruth Gregory, senior UK economist at Capital Economics. “And the daily data that we track suggests that the UK has been harder hit and slower to get back on its feet than Germany.”

Germans are flocking back to restaurants as restrictions ease Year-on-year % change in bookings, 7-day rolling average

While Ms Gregory attributes the differences “almost entirely” to the timing and stringency of the lockdown restrictions, the fact that the retail and hospitality sectors are a larger proportion of the UK economy could also explain the difference.

On Wednesday, the OECD said that thanks to Germany’s “widespread testing and high health sector capacity”, restrictions have been shorter and less stringent than in other European economies and this “moderated the [German] economic downturn”.

There are fewer UK trips by bus, train and plane, number of trips to public transports hubs (% change from pre-coronavirus average, 7-day rolling average)

The UK jobs market is also showing signs of a later pick-up than elsewhere in Europe. Data from the job search site Indeed show that the number of vacancies has shrunk more than in most other European countries, and the rate of improvement is slower.

Hiring data from the network site LinkedIn up to the first week of June confirm that jobs numbers have stabilised, but there are no signs of the recovery observed in other main economies, particularly France and China.

There are also fears of a wave of job losses when the government furlough scheme supporting 8.9m workers — a quarter of all employees — is phased out from August, when employers will start to share the cost of the scheme.

Elizabeth Martins, economist at HSBC, said the worry was that when the scheme is wound down “revenues will not be high enough” to cover the additional costs, “particularly if firms have taken on more debt to get through the lockdown”.

The UK labour market has been hit hard, job postings on Indeed (7-day rolling average, rebased Feb 1 = 100)

The slow pace of the recovery is confirmed by an Office for National Statistics survey into the business impact of coronavirus. In the second half of May, only 5 per cent of companies that responded had restarted trading in the previous two weeks, and only 5 per cent intended to restart in the following fortnight. By contrast, 12 per cent had paused business and did not intend to restart in the short term.

There are also no indications that international trade has picked up. The number of ships arriving in UK harbours each day fell marginally in the first week of June, after a small recovery at the end of May.

“Whilst activity does not appear to be collapsing further, there are as yet scant signs of improvement,” said Peter Dixon, economist at Commerzbank. Indicators “suggest that activity in May was close to the weak April levels and the indicators for early June are not promising”.

All high-frequency data is experimental and its links with economic activity are unproven. Moreover, not all of it tells the same story. While the UK lags behind Germany on most measures, real-time data from bank accounts and debit and credit cards from Fable Data suggest spending levels in both countries remained subdued in the first week of June at about 20 per cent lower than the same week in 2019.

Incorporating such unofficial — and sometimes conflicting — measures into a single index is difficult but it has not stopped economists, such as those at Jefferies, the investment bank, attempting the exercise. Its UK Economic Activity Radar rose this week compared to the previous one.

“The data is encouraging,” said David Owen, economist at Jefferies, but it shows that “the UK lags France and Germany”.

 

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