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Summary
- IHS Markit Household finance index for the month of August fell to 40.8 from 41.5 recorded in the month of July.
- Income from employment has fallen sharply during the month of August, while the public perception regarding job security remained firmly in the negative territory
- Experts are worried that the situation will become even more worrisome next month when the furloughing scheme comes to an end
The increase in the consumer spending levels that was witnessed in the first three months since the opening of the lockdown in the UK in the month of May now seems to slow down as the country enters the month of August. The IHS Markit Household Finance Index, which is one of the important barometers of consumer sentiment levels in the country has witnessed a dip during the month after rising consecutively for the past three months. The initial spurt in spending levels which was attributed to the pent-up demand from the lockdown periods has now been replaced by the concerns of the withdrawal of government furloughing scheme. The unemployment numbers in the country which is expected to go up significantly following the withdrawal of the scheme is being said to be a worrisome factor, as it will put a major dent to the country's recovery efforts. Moreover, the threat of the viral infection levels making a resurgence in the winter months is also affecting the psychology of the people, making them much more conservative than what they were in the past few months.
The IHS Markit Household Finance Index for August 2020
The IHS Markit Household finance index had taken a major dip in the month of April after the country had been put in lockdown. However, since then there has been a steep recovery in the index to reach a high of 41.5 in the month of July though still remaining in the contraction zone. However, the spending levels of people had already started to decline in the month of July compared to May and June, even if it did not show fall. The tendency of the people to rein in their debt levels and curtail on their current spending was already visible in the month and in the month of August is just got more profound falling to 40.8.
There are two major contributing factors that are making people more pessimistic about their short to mid-term well- being. The first is the withdrawal of the furloughing scheme, that is scheduled to take place at the end of this month while several hundred and thousands of workers have yet not been brought back to active work by their employers. At the same time, the second factor is the continuing deteriorating state of the pandemic, which is expected to worsen as the country enters the winter months. Should there be a rise in the infection levels, necessitating a fresh lockdown it would wipe out much of the recovery that has been done in the past few months and push the country into a far deeper recession.
The state of economic recovery since May 2020
The economy has made a better than expected recovery since the lockdown reopened in the Month of May. The Housing construction sector and the retail sector have made the biggest gain of all sectors taking advantage of the pent-up demand from the lockdown period. There are, however, other sectors like the transportation sector, the hotel and restaurant sector and the recreation sector which were permitted to be opened later than other sectors because of their heightened risk of infection. These sectors were also subjected to enhanced social distancing and safety measures which are making it more difficult than it would in ordinary circumstances to scale back their businesses.
The Bank of England in a report published earlier this week, has stated that it is expecting the economy to recover by 20 per cent in the last six- months of this year if the current state of recovery is to continue without any major disruption occurring during the time.
Is the fear of the end of furloughing scheme been a contributing factor?
The previously announced ending of the Furloughing scheme could be one of the important contributing factors in the people cutting back their spending levels in the month of August. There were around nine million people who were put under the benefit of this scheme by their employers. The current official unemployment numbers do not include people under this scheme who would most likely lose their jobs as the scheme ends, which is why it is still showing at normal levels despite the drastic fall in economic activity levels in the country. The true employment picture of the country could perhaps only be known when the figures for the month of September are made available. A sudden fall in the employment numbers in the country will not only make people more pessimistic but will also put significant downward pressure on the demand levels in the country, which would result in the further slowing down of the recovery levels. However, the government has announced the extension of the Self- Employed Income Support Scheme (SEISS) which covers people who were not beneficiaries of the Furloughing scheme. This initiative is expected to help and protect the livelihoods of the people when the country makes a slow but steady recovery.
The scope for improvement in public perception
The one factor which has the potential to improve the public mood the most is the rolling out of the coronavirus vaccine at earliest possible. This vaccine will not only significantly reduce the healthcare risk in the country but will also improve public sentiments, and their perception regarding their future wellbeing. It is also likely that the British government might bring about, some other interim arrangement to take care of the still furloughed people after 31 august so that there is no sudden spike in the unemployment levels in the country after that date.
