Uncertainty underlined a raft of economic data published last week which casts doubt on how long the recovery will last.
Despite the generally favourable view gained from the data in sectors such as manufacturing, retail, accounting and marketing, many economists believe the rebound from the pandemic could last just several months before coming to a halt.
A frail bounce-back could be snuffed out by rising unemployment, which the experts contend could reach 10pc by October just as the furlough scheme ends and other measures designed to support employment are dismantled.
Chris Williamson of data provider IHS Markit believes that the rising trend for laying off employees could stall the recovery. Last week, the company’s surveys of service and manufacturing businesses in July showed output increased robustly from June, although firms continued to lay off workers at a faster rate than in June.
Mr Williamson interpreted this as a sign that unemployment could rise and damp down the recovery. His comments are similar to those of two senior Bank of England officials who have warned that a V-shaped recovery is far from certain.
‘Jobless recovery’ forecast
Silvana Tenreyro of the London School of Economics (LSE), who joined the central bank’s monetary policy committee three years ago, said she is concerned that consumers will continue to be cautious in their spending on goods and services.
Official retail sales figures released last week painted a different picture. The data for June revealed retail sales increased by almost 14pc from the lows in May to almost pre-pandemic levels. However, much of the increase was in online shopping, which could well support Ms Tenreyro’s forecast of a ‘jobless recovery’, despite the growth in consumption.
A flatlining consumer confidence index reinforced the public’s reluctance to go out and spend money. The consumer confidence barometer (CCB) for July remained at -27, the same level as June, following increases from a low point of -34 in April. The barometer stood at -7 in February.
Speaking to MPs last week, Ms Tenreyro said that spending will suffer because of the perceived health risks of going shopping, which in turn will feed into higher unemployment and lower incomes. The UK, she added, could face a negative feedback loop, in which lower incomes would result in lower employment rates.
Jonathan Haskell, a colleague on the policy committee, added that fear of redundancy was likely to unsettle workers and cause them to save precious funds and reduce expenditure in the coming months.
James Smith, economist at ING bank, said the week’s data gave worrying signs that cautious consumers and the financial challenge presented by rising unemployment indicate that the overall economic recovery is unlikely to be fully V-shaped.
Furthermore, the size of the UK economy is not expected to return to pre-virus levels until 2022 or later, despite the strong recovery in retail sales during June.
Chancellor urged to extend furlough
Other data sets in the IHS Markit surveys found that around one third of service providers reported a fall in employment in July, citing weaker than expected demand and the higher costs of doing business as reasons for shedding jobs.
Mr Williamson was concerned that the survey showed a definite pessimism in outlook among manufacturing businesses. Although factory owners said they were laying off staff, it remains to be seen how many redundancy notices have been handed out while the furlough scheme remains in place and covers most of the cost of employment.
Nonetheless, MakeUK, the lobby group for manufacturers, has called for an extension of the furlough scheme. Stephen Phipson, CEO, said it was crucial that the Chancellor, Rishi Sunak, extends the furlough for the worst-hit manufacturing sectors to limit the damage to their long-term prospects.
Mr Phipson also urged the Chancellor to consider measures introduced by France and Germany, such as buying equity stakes to boost demand, especially in the aerospace and automotive industries. Sectors in the vanguard of developing new technologies which will be essential to the success of the UK’s economy.
Another major concern is the extent to which the lack of effective post-Brexit trade deals could smother the economy.