As of: 08/26/2021 8:06 am
The pubs are full, the retail trade is booming – the British are spending a lot of money again, the economy is growing strongly. But the pandemic is not yet over. Its consequences can be felt in many places.
At 5 p.m. sharp, countless employees pour out of the restaurants in Soho, London. Tables and chairs are hastily carried out and placed in the middle of the street. For some, tablecloths and cutlery follow. Others mark their outside area with fancy barrier tape. The now rehearsed spectacle lasts five minutes. Traffic on some streets is stopped until one in the morning. They then belong to the gastronomy and the hungry and thirsty who quickly take their seats at the tables.
Since the British government lifted almost all Corona measures on July 19, on so-called Freedom Day, the British have been populating the pubs and restaurants again in large numbers. The space on the street is needed and made possible by the local authorities. “Now that people can spend money again, they are doing it primarily in the catering and retail sectors. Far more than we expected,” says Peter Arnold, economist at the auditing firm Ernst & Young.
Services set the pace
As recently as last year, gloomy forecasts gave rise to fears that the UK’s economic recovery could take two or three years. Compared to other European countries, the British economy suffered the worst slump in the pandemic – only Spain’s gross domestic product shrank even more in 2020.
Now the UK economy appears to be on the recovery fast lane. This is what the recently published data suggest. According to the national statistics office, the economy grew by 4.8 percent in the second quarter compared to the first quarter. The recovery is thus coming faster than originally forecast, even if the gross domestic product is still 4.4 percent below the pre-crisis level.
| 2020 | 2021 * | 2022 * | |
|---|---|---|---|
| United Kingdom | -9.8% | + 7.0% | + 4.8% |
| Germany | -4.8% | + 3.6% | + 4.1% |
| France | -8.0% | + 5.8% | + 4.2% |
| Italy | -8.9% | + 4.9% | + 4.2% |
| United States | -3.5% | + 7.0% | + 4.9% |
| Canada | -5.3% | + 6.3% | + 4.5% |
| Japan | -4.7% | + 2.8% | + 3.0% |
* Source: International Monetary Fund estimate from July 2021
Central role of this service sector
In the UK, most money is still made in the services sector. For the British economy, it is the ventricle of the heart that had to significantly reduce its rate during the pandemic and thus caused the largest slump on the island in the past 300 years.
When the British government lifted the restrictions in mid-July despite the high number of corona cases, this also aimed to stimulate the economy. The British should spend their money. Because: British consumers saved the equivalent of 230 billion euros during the pandemic.
Strong demand in retail
The restrictions had to come down in order for them to spend it. According to current data, they do too. Arnold even believes that the UK economy could be back to pre-Corona levels by the end of the year. Provided there is nothing in between. He means the uncertainty of the pandemic.
The UK government is confident that the successful vaccination program will continue to build trust. The risk of contracting Covid-19 is not banned on the island. But severe courses, the number of hospital admissions and deaths have fallen sharply due to vaccination protection and natural immunization in those who were once ill.
The shops are full again. “The retail sector is recovering extremely well,” reports Tom Holder from the UK retail consortium. Clothes, furniture and electrical appliances would be bought. “Our expectations are exceeded.”
After Brexit, there will be a lack of truck drivers
Despite general optimism, however, the challenges for a broad recovery of the British economy cannot be overlooked. Most recently, the willingness to spend in retail shops has slowed down again. “Temporary,” believes Holder. But it is also a cautious note that British consumers do not want to immediately spend what they have saved with full hands. Who knows what’s coming?
Every day, an average of 30,000 British people are still diagnosed with Covid-19, and the trend is rising slightly. The high number of cases shows that the pandemic is not over, despite a quota of 75 percent of people who have been completely vaccinated.
In addition, the many sick people also inhibit productivity. A restaurant chain that specializes in chicken dishes recently had to close restaurants because too many supplier staff fell ill and chicken wing production stagnated. Then there are the consequences of Brexit. The restaurants also remained closed because some of the chicken meat available could not be delivered. There are too few truck drivers on the island; according to the industry association, 90,000 are missing because drivers from the EU in particular returned to their home countries after Brexit and during the pandemic.
One million vacant positions
This leads to delivery bottlenecks in the food industry as well as in retail. Recently there were occasional empty shelves in the supermarkets. The British government does not want to bring the emigrated truck drivers back. She is counting on UK workers to fill the void. The same problem exists in the meat industry. Most recently there was even the idea that prisoners could step in to make up for the labor shortage – with temporary clearances. It seems questionable whether this will happen.
In total, there are around one million vacancies in the UK. That, too, is holding back the economic recovery. In return, the unemployment rate is falling, to 4.7 percent most recently in June. It could rise again slightly if a government program ends at the end of September to protect workers from layoffs. Nevertheless, economist Arnold believes that unemployment will continue to fall afterwards. The situation is complex, says Arnold. But he firmly believes in a strong recovery in the UK economy. Because for him “the positive signs predominate.”