Partial recovery in retail sales in May, but rapid deteriorations in the labour market and the public finances

Date: 22nd June 2020

Partial recovery in retail sales in May, but rapid deteriorations in the labour market and the public finances
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest economic developments:
  • There was some evidence that economic activity partly recovered in May.
  • Retail sales rebounded 12.0% (MOM), after falling 18% in April and 5% in March. Moreover, the ONS's latest BICS found that the proportion of businesses trading, as opposed to being temporarily closed, was continuing to improve in late May.
  • But the labour market is beginning to deteriorate quite rapidly. HMRC data show the number of payroll employees fell by 2.1% (612,000) between March and May and vacancies collapsed by around 60% between March and May. The Claimant Count continued to rise rapidly in May, but these data include data for the employed as well as for the unemployed and so should be treated with caution.
  • Even though the unemployment rate was unchanged at 3.9% in the three months to April, unemployment is expected to rise sharply in coming months, especially when/as the Coronavirus Job Retention Scheme (CJRS) is phased out.
  • There was a sharp drop in average hours worked in April, reflecting the increase in those still employed but absent from work, working zero hours. Moreover, annual earnings growth fell in April. In real terms total earnings (including bonuses) showed a fall of 0.4% (YOY), whilst regular earnings (excluding bonuses) rose just 0.4% (YOY).
  • Public sector net borrowing (PSNB) was £55.2bn in May, after £48.5bn in April, giving a cumulative total for the first two months of FY2020 of £103.7bn. The equivalent figure in FY2019 was £16.7bn, £87.0bn less. The OBR has projected a PSNB for whole year FY2020 at £298.4bn. Public sector net debt (PSND) reached £1,950bn at end-May 2020, 100.9% of GDP.
  • The OBR currently estimates that the direct impact of the new coronavirus-related policy measures on cash borrowing will be £132.6bn in FY2020.
Concerning other data:
  • CPI inflation fell to 0.5% (YOY) in May, partly reflecting lower fuel prices.
  • Producer output prices inflation was -1.4% (YOY) in May, reflecting lower prices for petroleum products and producer input prices inflation was -10.0% (YOY), reflecting lower crude oil prices.
Concerning the Bank of England:
  • The MPC increased the target stock of purchased UK government bonds by £100bn to £745bn at its June meeting, as expected. They left the Bank Rate unchanged at 0.1%.
  • • On the economic outlook, the MPC said that there were signs of economic recovery and GDP in 2020Q2 might be 20% below 2019Q4, rather than 27% below as projected in May. But on the labour market '…there were upside risks to unemployment'. In May the Bank projected a rise in the unemployment rate to around 9% in 2020Q2, before gradually easing back.
Ruth Lea said, 'The encouraging news is that there were further signs of partial recovery in May, with retail sales rebounding by 12%. But it should be noted they were still well down on their February level and, with lockdown restrictions still in place, a full economic recovery is still a fairly distant prospect.

Concerning the labour market, it is widely expected that there will be sharp increases in unemployment in coming months. It is not unreasonable to suggest unemployment will rise by around 2 million, which would give an unemployment rate of around 10%. Moreover, it can be expected that unemployment increases will be drawn disproportionately from the vulnerable, high furlough, sectors, including 'accommodation and food service activities' and 'arts, entertainment and creation'.

Finally, the developments in the public finances are quite shocking, albeit expected, with public sector debt standing at over 100% of GDP at end-May. The OBR's costing of the coronavirus policy measures is currently a staggering £130bn for FY2020, whilst they expect public borrowing of around £300bn for this financial year.'

For full story: http://www.arbuthnotgroup.com/economic_perspectives_group.html

Press enquiries:

Arbuthnot Banking Group PLC:

Ruth Lea, Economic Adviser
07800 608 674, 020 8346 3482
ruthlea@arbuthnot.co.uk
Follow Ruth on Twitter @RuthLeaEcon

Maitland:
Sam Cartwright
020 7379 4415
Jais Mehaji
020 7379 5151
arbuthnot@maitland.co.uk
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Arbuthnot Banking Group plc published this content on 22 June 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 22 June 2020 09:31:04 UTC