GBP data wrap: Look through the headlines to an arduous recovery

Disappointing green shoots

Following the prior two month’s 25% fall in output, prospects of a smart rebound in GDP were dashed with a dismal 1.8% increase in May, well below expectations of a 5.5% rebound. There are a number of caveats to this release, the primary one being that lockdown measures were still largely in place with Google’s Mobility Index signalling a rebound in activity of just 4%. In addition, GDP data is typically hard to collate, especially in times like this, so we could see notable revisions in the coming months.

There was a decent bounce back in manufacturing and industrial production but the all-important services sector, which makes up 75% of the economy, showed a meagre improvement. Again, this data can be difficult to gather, but the recovery doesn’t look too V-shaped at present in these releases, even if it is ‘old’ data.

Of course, next month’s GDP figures should show a sharper rise in output with evidence of some pent-up demand and as re-openings of larger swathes of the economy commenced. That said, some economists have estimated that the economy will still have been around 20% smaller at the end of the second quarter than it was pre-virus.

Future joblessness concerning

Today’s unemployment numbers didn’t really tell us anything we didn’t know already, it’s more the future outlook that's worrying. At 3.9%, the official unemployment figure is still near its all-time low, but this doesn't include those who are currently on furlough as they are still classified as employed. The ONS numbers did tell us that around 650k fewer people were on payrolls than before the lockdown in March, and this gives us a sense of where we might be heading.

Remember that nearly a third of all employees – that’s over 9 million workers – are using the Government’s job retention scheme, so there is little doubt that the unemployment rate will rise towards double figures over the coming months as we see the gradual unwinding of the furlough program. Digging into the detail also shows us that SMEs have been the biggest users of the scheme and these firms are generally the major job creators across the country.

With the headlines increasingly filled with daily job loss announcements in different sectors, many firms appear to be making decisions now and not waiting for the new Government bonus scheme. Anecdotal evidence also points to lower demand, especially due to social distancing measures and restrictions.

Further stimulus measures?

This more muted picture is somewhat in contrast to that presented by the BoE’s Haldane late last month who viewed upbeat news on demand outweighing negative labour market developments. Together with concerns over a second wave of infections and the onerous Brexit trade changes coming, the recovery looks to be tepid at best. This is likely to reignite the debate around whether the bank’s MPC will be forced to undertake further rate cuts, possibly taking the bank rate into negative territory and likely more QE. The modest headline inflation beat this week is expected to be temporary as well, before a summer deflationary dip adds further pressure on the bank.