The economic data reported since our last update appears to have finished off any hopes of a ‘V-shaped’ recovery. COVID-19 case numbers are increasing again and there are more local lockdowns and other restrictions than there were three months ago, so a swift return to any kind of ‘normal’ is increasingly unlikely.
Data from the monthly estimates for GDP, shown in Figure 1, indicate that only around 60% of the value lost from January to April has been recovered so far (April to August). The rate of recovery is slowing and the financial support from government is being tapered down in some areas. Further economic uncertainty is on the horizon for 2021 with the apparent breakdown of trade talks between the UK and EU.
Experian’s report for Cluttons also highlighted the slowing pace of the economic recovery, noting that consumer confidence is falling. The household savings ratio has jumped up this year, further signalling that people may be worried about their finances going forward. By contrast the latest PMI data on services shows business confidence improving.
FIGURE 2 - Other economic indicators
Figure 3 shows a sample of GDP forecasts from the October HM Treasury comparison report, plotted against the equivalent figures from three months earlier. Most of the forecasters agree that GDP will finish 2020 around 10% down, but there are varying views on 2021. The latest figures for next year have seen both upgrades and downgrades compared to last quarter, reinforcing how uncertain the outlook is. The full range of forecasts (see p8 of the October report) stretched from 2.5% to 9.0%, averaging around 6%.
The pandemic continues to massively disrupt employment, with furlough and other support replaced or extended as local lockdowns are introduced across the country. The total value of claims on the Coronavirus Job Retention Scheme passed £40bn in October, and Figure 4 shows how the total number of furloughed jobs peaked at 8.9m in early May before falling steadily back to around 3.3m at the end of August.
The official measure of unemployment has started to increase, reaching 4.5% (vs. 3.9% last quarter). Other measures of employment continue to reflect the reality of the employment situation much more clearly. The ONS measure of hours worked remained over 15% down on the same period last year, with 2.2% fewer paid employees too, as shown in Figure 5. Median pay is up, suggesting that it is lower paid roles that have been lost or furloughed.
Unsurprisingly the Bank of England Q3 2020 Credit Conditions Survey reported a big bounce-back in the demand for new mortgages as the residential market came out of lockdown very strongly. Their demand metric for mortgages for purchases hit +96, the highest ever level. High-LTV mortgage availability improved slightly compared to Q2. Margins continued to widen, reflecting an increase in perceived risk amongst lenders – the chart below shows a selection of results from the secured lending section of the survey.
Demand for, and availability of, unsecured loans were both down this quarter. Overall, corporate credit availability continues to improve, but expectations are for reduced availability next quarter. Demand for credit from small businesses increased but for medium and large ones it fell back again.