Around the world, the summer season is increasingly being looked at as a time of recovery. While many countries are still in the midst of partial shutdowns, and all are wary of a second wave of the coronavirus, economic outlooks by and large suggest that these next few months should bring about signs of progress.
In some countries, this is already occurring to a degree. In the UK, however, the picture looks murkier. At this stage, there are both positive and negative indicators where economic recovery is concerned.
The Worst is Over
It actually became clear toward the end of spring that barring a significant second wave, the worst was over. Businesses started to reopen, the PMI rose, and GDP estimates became somewhat more optimistic. All of these were good signs for an economy looking to get back on track. As compared to ordinary times, business activity, PMI, and GDP remain well below what one would hope to see. Positive trajectory matters, however, and we can thus take these late-spring indicators as tentative positive signs of an early-stage recovery in the UK.
The Pound is Strengthening
Some weigh the importance of currency value more than others, and ultimately it’s one of many factors to consider. At this point though, the GBP is strengthening — even if it’s had some sharp ups and downs. Charts comparing the GBP and USD in real time show that the pound’s relative value early in July was slightly greater than it was at the beginning of the preceding months (and higher than it was through almost the entirety of May). The pound’s value has cratered a few times in recent months, and will likely dip again. But its overall trajectory since the crisis began paints a picture of slow but apparent strengthening. That said, the GBP has a long way to go before it reaches the value of 1.3076 USD it held back on 1 March.
Leadership is Questionable
By this point in 2020 it’s clear that some of the best responses to the pandemic have been seen in countries viewed as having functional representative governments and progressive leaders. In this respect at least, the UK is not among those nations. Prime Minister Boris Johnson has been viewed as something of a wildcard, particularly financially, since before he assumed office. We remarked last summer, in fact, on predictions that his rise to power would hurt the pound. And in the time since, he’s kept the UK on a non-stop roller coaster of Brexit-related uncertainty (something global investors consider to be one of the top concerns for H2 2020, even with the ongoing pandemic). Given these concerns, it’s no surprise that Johnson’s leadership regarding the recovery efforts in the UK has been inconsistent.
In June, the prime minister announced tax he was taking charge of the response to the coronavirus, in what seemed to be a baffling admission that he’d not already done so. It was a rather shocking gesture from a major world leader at a time when some nations were already well along in their own recovery efforts. The hope in a place like the UK is generally that the government has a handle on major issues. But Johnson has given little indication that this is the case with regard to the recovery effort, which raises questions about the potential strength and quickness of the recovery. He only recently acknowledged that people in the UK ought to be wearing face coverings.
Spending is Slow
Finally, despite some of the aforementioned positive indicators, one sign in particular is troubling for the UK economy: Per a June report, consumers aren’t spending. This assertion is based on data that indicates spending, mobility, and confidence barely ticked up at all after the prime minister publicly encouraged people to return to work (and by extension some version of their normal lives) toward the end of spring. If there is not a significant second wave of the virus, spending and mobility in the UK should gradually increase over time, and may even be doing so now. Right now though, these indicators are lagging behind what one would like to see in a strong recovery.
Altogether, this paints a picture of a UK recovery effort that looks murky at best.
Frontpage February 13, 2019