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Chief Economist’s note: the UK economy eases out of lockdown

The UK economy eases out of lockdown

Yael Selfin, Chief Economist in the UK discusses changes in behaviour as the UK gradually reopens.

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Yael Selfin - Chief Economist at KPMG in the UK.

Chief Economist

KPMG in the UK

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Also on home.kpmg

Key points

  • Pent-up demand in the housing market failed to translate into prices.
  • Consumers appear to be cautious, favouring cycling and private transport.
  • There are significant regional variations in the number of journeys to work and to retail locations.

The Nationwide house price index for June saw prices fall further, despite an increase in interest from buyers following the reopening of the market.

The gradual reopening of the UK economy after the lockdown continues apace, with pubs and restaurants set to reopen later this week. In this note, we look at how the easing of lockdown is proceeding and what we could see as we enter this new phase.

Overall, retail footfall continues to be lower than before lockdown. Data from Springboard shows a fall of 52.8% at the end of June, compared to a year ago. There may have been queues outside stores on the day that non-essential retail stores reopened, but consumers appear reluctant to return to the High Street en masse. We could see similar scenes this weekend in pubs and restaurants, but as with retail, overall demand is likely to remain far below pre-pandemic levels. 

Consumers are searching for property and big-ticket items

There are also signs of pent-up demand for property. Data from Zoopla shows searches in England surged to 60% higher than pre-COVID levels after the market re-opened on 13 May. While search levels have calmed since, by mid-June they were still 40% higher than at the start of March. Similarly, Google showed a jump of 66% in searches to buy property between the end of April and mid-May.

Chart 1: Internet searches on durables, property and car purchases
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Source: Google trends

Data on online search activity also shows a pick-up in interest in other major purchases. Chart 1 shows a surge in searches for furniture and used, and new, cars. While public transport use remains barely above the levels seen during lockdown, car use has recovered to around 80 percent of the level seen at the start of March. Private transport appears to be a major beneficiary of social distancing, with more looking to obtain a driving license. This could help drive increased vehicle sales this year. 

Chart 2: Traffic data by mode
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Source:Dft

The increased interest in car buying could be a major boon for auto manufacturers, who in May saw another month of weak production output, 95.4% lower than a year ago, according to data from the SMMT.

While car use recovers, cycling has enjoyed a renaissance, with traffic at levels markedly higher than before the crisis. If this change can be sustained into the future it could mean cities are less congested and have lower levels of pollution.  

Chart 3: Locations visited since March 2020
chart-4-image

Source: Google Mobility report

Travel patterns only partially determined by lockdown

Using data from Google maps, we can trace the locations visited during lockdown. Data shows that people have complied with the conditions of the lockdown: in April the only trips that saw an increase were in local residential areas. By May, we can start to see a pick-up in trips to parks – the sharp fluctuations appear to reflect the changes in the weather.

Workplaces and retail locations have seen an increase in visitors compared to the peak of the lockdown, when visits fell to a tenth of the level before the pandemic. Since then, we have seen a gradual recovery, alongside the easing of restrictions.

The data also suggests that rather than the impact of restrictions, people’s choices are the main cause for fewer trips to certain retail locations, with no step changes visible in travel when restrictions were lifted. This could indicate that shoppers will remain reluctant to visit retail outlets while the threat of infection remains. 

Chart 4: Reduction in visitor numbers for selected locations in the UK
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Source: Google Mobility Report. Data on 23 June 2020 compared to the median for the corresponding day of the week between 3 Jan – 6 Feb 2020.

Chart 4 shows the latest data on journeys to places of work and retail suggesting there is a significant variation between urban and rural areas, with a smaller reduction in more rural areas: in Cornwall, there has been a 37 percent reduction in journeys to retail locations, compared to 58% in London. In addition, we can see the impact of a stricter lockdown in Scotland: Edinburgh continues to witness the greatest reduction in travel to work or shopping, at nearly -70 percent for both.

 

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