UK Edition
British economy recovery is stuck in a ‘low gear’ compared to European neighbours
Bank of America predicts the economy will see a U-shaped recovery rather than the V-shaped rebound predicted
Britain’s economy is emerging from the Covid-19 crisis as the sick man of Europe as its recovery falls far behind other countries.
Economists are warning the UK is facing the “worst of both worlds” in the biggest economic hit in Europe and a high death toll amid signals that activity is only picking up more slowly than on the continent.
Britons were spending the least time at workplaces and transport hubs in early June, according to movement data tracked in 12 major European economies by HSBC. Economists at Barclays also warned the recovery was stuck in a “low gear”, with the bounce back in consumer spending slowing in the first half of June.
Ethan Harris, Bank of America economist, predicted the UK will suffer the “worst of both worlds” with the weakest 2020 economic performance in Europe and one of the highest Covid-19 death rates.
The economy will see a slow U-shaped recovery rather than the rapid V-shaped rebound predicted by the Bank of England, the Wall Street bank said. The Bank struck a more upbeat tone on the recovery on Thursday but, if the current pace continues, GDP will still be 15pc below its pre-virus levels by September, Mr Harris said.
He added to growing doubts among economists about the optimistic scenarios presented by officials. Forecasters are tracking a number of real-time indicators, including workers’ movements, electricity consumption and card transactions, for signs of activity. The UK and Ireland are “still lagging behind” on the workplace signals in Europe, HSBC economist Fabio Balboni warned.
Time spent in workplaces was still down by almost 50pc compared to normal levels in early June, but is just 9pc lower in top performer Greece and a quarter down in France and Germany – countries that imposed earlier and tougher lockdowns than the UK.
Economists at Barclays also saw reason for caution on the UK economy’s rebound with its data showing the recovery in consumer spending slowing this month. Fabrice Montagné, its UK economist, warned the rebound has “remained in a low gear” despite “signs of pent-up demand”, but said the reopening of shops and schools should provide a “second wind”.
The economic legacy of the coronavirus will last longer if Government support schemes fail to stop surging unemployment and business failures. Economists fear a wave of redundancies, when the furlough scheme ends in October, will set back the recovery.