Last week the Scottish Government announced that the country is moving into Phase 1 of lockdown easing. With nice sunny weather over the weekend, this has allowed people in Scotland to meet with another household outdoors in a physically distanced way. However, there have not been significant changes with respect to the re-opening of the economy. This has translated into most indicators of the Scottish economy remaining subdued.
Timely data suggests that the Scottish labour market continued to operate at historically low levels during May. Consumer sentiment has remained well below trend and has seen only a modest recovery in certain sub-sectors, such as fast food restaurants. The Scottish and UK governments continue to provide support for businesses in high volumes. With the Chancellor’s announcement last week about the gradual phasing out of the furlough scheme, it will be important to continue monitoring how businesses manage to cope in the face of low revenues.
Many businesses have had to temporarily cease trading and overcome the impact of lower consumer demand. This has translated into a fall in turnover for firms across all regions of the UK. The ONS BICS survey can be used as a timely indicator of how the pandemic is affecting businesses.
Chart 1: Revenue of businesses which are continuing to trade between 4th and 17th May, broken down by country and region (surveyed between 18th and 31st May)
Source: ONS Business Impact of Coronavirus Survey
In Scotland, 65% of businesses have reported a fall in turnover between 4th and 17th May compared to 62% in the UK. Firms in Wales have been the most affected (67% reporting a decline) and firms in Northern Ireland have been the least affected so far (54% reporting a decline in revenue). The share of Scottish firms reporting a fall in turnover has stayed roughly the same compared to the previous wave of the survey which covered the period between 20th April and 3rd May.
The decline in revenue has led the UK and Scottish Governments to provide business support grants and loans to firms in order to help them cover a portion of their fixed costs and retain their staff.
Chart 2: Government schemes applied for, businesses who have not permanently stopped trading, broken down by country, UK, 4th to 17th May (surveyed between 18th and 31st May)
Source: ONS Business Impact of Coronavirus Survey
The UK Government’s Coronavirus Job Retention Scheme has been the most widely used supporting measure across all regions of the UK. As of the end of May, 82% of Scottish businesses have applied for the scheme.
According to HMRC 8.7m jobs have been furloughed and claims worth £17.5bn have been made across the UK so far (no regional data available for Scotland). The self-employment income support scheme has also seen a big take-up with 2.5m claims worth circa £7.2bn across the UK.
Business grants provided by the UK and devolved governments have been the second most popular scheme. Approximately 19% of Scottish businesses have applied for grants from the Scottish Government’s Business Support Fund.
Chart 3: Cumulative number and value of grants awarded under the Scottish Government’s Business Support Fund
Source: Scottish Government
The highest number of grants was awarded in April, but support has been flowing steadily to Scottish businesses in May too. As of the 26th May, 69,508 grants were awarded worth a total of £791 million across Scotland.
The temporary closure of some businesses and uncertainty about future income for people has led to a significant decline in consumer sentiment since the start of the lockdown. Data on Google searches for products and services can serve as a leading indicator in this area.
Chart 4: Google searches for products and services in Scotland
Source: Google Trends
Note: Cars represent the average of the search index for the six most sold car brands in the UK. Fast food restaurants represent the average for KFC, McDonalds, Burger King, and Subway.
Searches for cars have remained 30% lower in the week commencing 24th May compared to the same week last year. Interest in theatres and hotels has not seen any notable recovery either, remaining 60 – 70% lower compared to last year. One sub-sector which has seen a slight recovery in demand has been fast food restaurants. Some chains have re-opened for drive-through and takeaway after remaining closed for several weeks. This has led to a surge in demand exceeding normal levels. However, fast foods represent only a small portion of the wider restaurant industry, which has seen a significant fall in activity since social distancing measures have been put in place.
The movement of people to different venues can serve as a timely indicator of economic activity. The lockdown has put significant restrictions on the mobility of people. However, England started lifting some restrictions earlier than Scotland and this has resulted in a marginally quicker recovery in some areas of activity for the UK.
The data does not yet capture the week in which Scotland entered the first phase of lockdown easing. Developments in Scotland may have thus converged closer to the UK levels since then. However, it does provide some indication about the effects the divergences in the pace of lockdown easing are having between Scotland and the rest of the UK.
Chart 5: Mobility of people in UK and Scotland between 19th and 25th May
Source: Google Mobility Trends Data
Note: The data for Scotland is an average of the mobility index for Scotland’s major 5 cities (Edinburgh, Glasgow, Aberdeen, Dundee, Stirling). The data for the UK is an aggregate for the whole country.
Travel, visits to workplaces, visits to retail and recreational facilities have still been significantly down compared to the pre lockdown baseline for both Scotland and the UK. But the differences in advice between the UK and Scottish governments may have translated into some forms of economic activity, such as consumption and labour supply, recovering marginally faster in England compared to Scotland.
Despite the supporting measures from the government, the fall in consumer demand and contraction in economic activity has translated into some companies reducing staff numbers. This has led people to rely on the welfare system for support. DWP management information on the number of individuals making universal credit claims can be used as a timely indicator of the state of the labour market. By applying the average share of claims made in Scotland from the DWP outturn data to the weekly management information for the UK, we can get a rough idea of the most recent trend in the number of claims made in Scotland.
Chart 6: Number of new universal credit claims in Scotland
We can see that the number of new claims peaked in the weeks commencing 26th March and 2nd April and since then it has been steadily falling. In the two weeks from the 7th May the estimated number of new claims in Scotland has stabilised at circa 11,000 per week. This is still more than double the levels seen in the weeks prior to the lockdown.
The uncertainty about the re-opening of the economy and lower demand has led many companies to put hiring decisions on hold. The job search engine Adzuna collates data on the number of jobs advertised from different sources. These range from direct employers’ websites to recruitment software providers to traditional job boards thus providing a comprehensive view of current online job adverts. We can see that in April and May the number of vacancies in Scotland has fallen significantly compared to the months before the lockdown.
Chart 7: Number of vacancies in Scotland
Source: Adzuna Labour Market Stats
In May, the number of vacancies was 64% lower compared to the same month last year. This indicates that demand for labour has fallen significantly. Moreover, the higher number of unemployed people per each vacancy in Scotland may result in a lower job finding rate for those who have lost employment during the lockdown. This may leave people to rely on the welfare system for a longer time than during periods when the economy is operating at full capacity.
In our article on real time indicators two weeks ago we showed that the Scottish housing market has already been slowing down during the first few weeks of the lockdown. Property prices fell in March and the number of LBTT returns fell significantly in April. Nevertheless, both indicators reflect the situation in the housing market with a slight lag.
This week, Registers of Scotland published new timely data on the number of residential property sales. The dataset also includes the number of advance notices which can serve as a leading indicator about the situation in the Scottish housing market. An advance notice provides interim 35-day protection for deeds between two parties intended to be registered in the land register. Not all advance notices will lead to a property sale and not all sales require an advance notice. However, the advance notice data provides a timely insight into intentions of future property transactions.
Chart 8: Index of advance notices and residential property sales by week: Scotland, week ending 4 January 2019 to week ending 22 May 2020 (residential property sales up to 30 April 2020)
Source: Registers of Scotland
Chart 8 shows that trends in both series are similar. When advance notices increase, this is usually followed by an increase in residential property sales and vice-versa. During the coronavirus pandemic the Registers of Scotland stopped processing property sales registrations by post and only launched a digital service from the end of April. However, advance notices continued to be processed digitally.
We can see that the number of advance notices fell significantly at the start of the lockdown as the Scottish government advised people to delay moving home where possible. It remained between 30 to 50% below the levels seen during the same weeks last year.
Furthermore, the English housing market has reopened on the 13th May, but the Scottish housing market is not set to re-open until the 18th June. According to Zoopla, there was an 88% spike in demand in the week after the reopening of the English housing market as people who were holding off with their plans followed through with their intended transactions. A similar trend can thus be expected in Scotland once the housing market reopens again. However, in the meantime the length of the lockdown of the Scottish housing market may put additional downward pressure on property prices in Scotland relative to England. This may contribute to an asymmetry in developments between the markets in the two countries.
Economic activity in Scotland continues to be suppressed and businesses are continuing to rely on supporting measures from the government. The number of new job losses appears to have fallen in May compared to the spike seen at the end of March and beginning of April. However, the number of vacancies in May was the lowest during the past year, which suggests that the labour market continues to operate with a significant amount of slack.
Consumer demand appears to be recovering in certain sub-sectors of the economy but remains well below trend overall. This has resulted in a decline in revenue for two thirds of all Scottish businesses. Moreover, the faster easing of lockdown measures in England relative to Scotland may have caused consumer demand in Scotland to lag slightly behind demand in the rest of the UK. A similar situation is playing out in the English and Scottish housing market where we are seeing a temporary divergence in demand between the two countries.
So, whilst the lockdown has begun to gradually ease, there are significant economic headwinds ahead for the Scottish economy. We may need to wait until the next phase to see activity begin to pick up in the economy.