It’s growth, Jim, but can we sustain it?
My apologies to fans of Star Trek for butchering a phrase often attributed to the show for the title of this blog.
Although I understand the words It’s life, Jim, but not as we know it were never actually spoken in the original Star Trek series.
Anyway, I digress.
Could this be a sign of the much-heralded V-shaped recovery we’ve been waiting for?
The latest official figures show that the UK economy expanded by 6.6% in July.
However, despite this impressive one-month growth, the size of the UK economy remains 11.7% smaller than it was before the start of the pandemic.
July’s growth figure is the third consecutive month of economic expansion but means the UK economy has only recovered a little more than half of the output lost due to the Covid-19 pandemic.
The growth of 6.6% in July was slower than the 8.7% growth we experienced in June.
Contributing to economic recovery in July were hairdressers, pubs and restaurants, which were allowed to reopen following their closure in March.
The accommodation and food services sector grew by 140.8% in July, reflecting an almost total shutdown in output prior to this.
Economic activity among businesses in this sector was 60.1% lower than recorded in February, suggesting the sector has a long way to go to achieve a full recovery.
Ahead of the August figures, which will be published next month, commentators expect to see further growth in the sector, thanks to the boost from the government’s Eat Out to Help Out scheme.
The shape of this recession and subsequent recovery is interesting, with the technical definition of a recession being two consecutive months of economic contraction.
Such speedy recovery in the third quarter, from a low base, means we are likely to see the country come out of recession, in technical terms, but whether this recovery is sustained is anyone’s guess.
The closure of the Coronavirus Jobs Retention Scheme at the end of October is feared as the catalyst for significant job losses and business closures.
And the looming threat of Brexit without a trade deal confirmed, at the start of 2021, is another factor which could dent business and consumer confidence.
Our job as Financial Planners is not to predict where the economy or investment markets will head next.
Indeed, you should question any Financial Planner who makes forecasting like that central to their proposition.
But we should have a decent grasp of the various factors and risks likely to influence the world in the future, even if it’s the Black Swan-type events that inevitably catch us out and have the most significant impact on our lives.