Will England pay an economic price for reopening early?

Regional PMI data shows the English regions outpacing the devolved administrations. They reopened sooner but Covid-19 cases are now rising again 

James Moore
Chief Business Commentator
Saturday 12 September 2020 15:01 BST
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The UK economy is recovering from lockdown but some regions have rebounded better than others
The UK economy is recovering from lockdown but some regions have rebounded better than others

The UK economy continued to recover in July, expanding by 6.6 per cent, according to the official figures released by the Office for National Statistics.

But NatWest’s regionalised PMI (Purchasing Managers’ Index) data suggests the recovery is an uneven one.

There is a striking difference between the rebound in business activity it has recorded in the English regions with what’s been going on in the devolved nations of Scotland, Northern Ireland and Wales.

The index is derived from regionalising the responses to the regular nationwide surveys of participating companies conducted by IHS Markit to produce its closely watched series.

Each region is given a number, with anything above 50 indicating growth.

Back in June, the data had all regions bar the East and West Midlands in the red (scores of below 50). Scotland was, by a distance, the worst performer (scoring 37.1), followed by Northern Ireland (42.6). Wales was in the bottom five too (48.4).

Moving into July, with England pushing forward with reopening, all the English regions rebounded, ranging from the West Midlands’ score of 61.9 at the top to London’s 55.5.

Scotland was still in the red (49.3), Wales was only barely in positive territory (50.2), Northern Ireland recorded a score of 54.5.

August saw every region in growth, but again Wales (51.5) Northern Ireland (51.7) and Scotland (55.8) propped up the table.

Now there are obviously local factors affecting each of the numbers, but there is one very obvious macro difference between England and the rest. It went further and faster with reopening than did the devolved administrations.

The figures show that while there is still a big gulf between the fastest growing regions and London in particular (the capital took a brutal hit from the pandemic and has been notably slower to recover its vim), England has reaped an economic benefit from reopening earlier.

But you can see the rather obvious potential sting in the tail.

At the end of last week, official figures showed coronavirus infections in England were doubling each week and the crucial R number had moved above 1.

Birmingham announced a ban on household mixing. Liverpool, Gateshead and Newcastle were all added to Public Health England’s lockdown watchlist. Sunderland and South Tyneside were expected to join them. All of those, by the way, are in the northeast, which had been setting the pace in August with a business activity score of 66.

The obvious question is whether this will result in England paying an economic price for the decisions the government made on its behalf.

There is, obviously, also the lingering question of Brexit, which could be playing a role in Northern Ireland’s struggles, given the uncertainty over where it will end up as a result of the unsightly tug of war instituted by Boris Johnson.

Another important point is made by Sebastian Burnside, NatWest’s chief economist: while the numbers show recovery in both economic output and demand across the board, this is yet to translate into any meaningful improvement on the employment front.

Redundancy announcements have been appearing with grim regularity, even with the government’s job retention scheme still subsiding the wages of millions of furloughed workers.

“The worry is what will happen once that support is withdrawn over the coming months,” says Burnside.

Indeed so. Even if the renewed coronavirus crisis in England is effectively tackled through local measures of the sort I mentioned, the unemployment damn has already been breached and is poised to burst.

The pressure on Rishi Sunak to either extend the furlough scheme, or at least to offer targeted support to particularly hard hit sectors/regions, is only going to mount.

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