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Wednesday 8 July 2020

Corona Shock

Corona shock: July

England is leaving lockdown behind – inspired, perhaps, by Dominic Cummings

By Chris Cook and Ella Hollowood

Spending by households in England is almost back to the levels recorded at the same time last year, analysis of bank account data by Tortoise has shown. In the latest available week, commencing 16 June, the spending totals for England were only around 5 per cent below the equivalent week of last year.

The new data shows, however, that spending was actually at a higher level at the end of May. Household spending in our sample, based on spending by consumers at a group of UK high street banks, soared in the week leading up to Monday 1 June, by 18 per cent.

That week, the government had given notice that it would imminently ease lockdown rules. While the rule changes were intended to take effect only on 1 June, some households did not wait for the deadline to change behaviour. That week was also half-term for many schools.

The speed of the rebound may, however, also have been spurred by a high-profile rules breach by Dominic Cummings, the prime minister’s aide. That week, Week 10 in our tracker, coincides with the public revelation that the prime minister’s chief aide had taken a trip to Durham to stay near his parents – a widely discussed event which, it was feared at the time, would contribute to lockdown breaches.

Cummings’ well-publicised trip to Barnard Castle – a 60-mile round-trip drive with his wife and son which he says he undertook to test his eyesight – may have contributed to a 17 per cent surge in spending in the picturesque town that week.

This data all predates the most recent lockdown relaxations, which took effect on Monday. In Wales, which retained tougher lockdown messaging and rules, purchases remained around 11 per cent down over the same period.

The latest update of our dataset will give confidence to optimists about the speed of the UK economy’s potential rebound. Andy Haldane, the Bank of England’s chief economist, who has said “upside news on demand had outweighed the other negative news on the outlook”.

Beneath the bonnet

Beneath the headlines, there are, however, still enormous changes in how and where people are spending. Across England and Wales, grocery spending is up by about 10 per cent, while non-grocery spending is down by about 15 per cent. There are sectors which still have little or no incomes. People are also still shopping more locally – and online.

Spending at businesses in London, overall, is now just 4 per cent below what it was last year – buoyed by the continued strength of its financial centre. But the two wards making up the heart of London’s West End, its most famous shopping district, are still down by 42 per cent on last year. Meanwhile, spending allocated to Hoxton and East Shoreditch, the home of Amazon and other online retailers, is up by 135 per cent.

The worst affected towns are, furthermore, still scoring horrific losses: Wadebridge and Penzance, both in Cornwall, and Pwllheli and Porthmadog in Wales are down by 40 per cent or more on the same time last year. These are tourist towns and their losses are lower than they were during the lost Easter holiday period, for example. They remain, however, stranded a long way back.

Their poor performance relative to other towns reflects the simple formula that has determined the cost of the pandemic to towns: if your customers needed to travel to you, you suffer heavily. The top 10 most retail-dependent and tourism-dependent towns were still lagging towns and cities which did not rely on being able to cast further afield for custom. University towns are also suffering heavily: the students are still not back.

These patterns are clearer when we look at towns with particular concentrations in different industries. These lines show the performance of the ten towns with the greatest employment concentrations in these industries. Manufacturing areas, whose shops do not rely on anything other than passing or local trade, had returned to previous levels of trade by mid-June.

Gen Maitland Hudson from SIB, the regeneration charity which has given Tortoise access to the data, said: “There is good news in this latest Corona Tracker; spending is more buoyant than we might have expected, and that is crucial to many small businesses, as well as the employees of our high streets and town centres.”

“At SIB we remain concerned, though, for the places that have been rocked by Covid-19, and whose foundations were already shaky. Seaside resorts and coastal towns will not bounce back, level up, or insulate their cavity walls out of this crisis. The need for a patient and long term strategy of investment in these places remains as important as ever.”

Who is holding back?

This week, for the first time, we are using the so-called “Cameo UK” dataset, a commercial tool which categories households by their characteristics. Cameo is a marketing tool used by companies for segmentation: picking out possible customers from a mass of data based on their socio-economic characteristics. We can use it, however, to see how different groups in society have managed the lockdown.

For our analysis, we have grouped together the richest three categories – “business elite”, “prosperous professionals” and “flourishing society” – as a single bloc. These categories saw a 40 per cent drop from their March spending levels, and are still 15 per cent down. As in all cases, this is driven by a marked decline in “other” spending since March (down 25 per cent) offset by a rising in grocery spending.

These people are the most likely to have been working from home and to have secure employment which may be resilient to the pandemic. Higher-income people also spend a smaller share of their incomes on essentials, so have more room to reduce their spending without causing themselves hardship.

By contrast, the least prosperous groups – dubbed the “cash conscious communities”, “on a budget” and “family value” in Cameo – have had little room to cut spending. Their spending is closer to what they earn. The people in these three categories peaked at a 28 per cent drop, and had recovered to be just 3 per cent below their prior level by mid-June. This group is more likely to be spending most of their income on essentials and to have been forced to continue a more regular working pattern during the lock-down.

The middle bloc – “content communities”, “white collar neighbourhoods”, “enterprising mainstream” and “paying the mortgage” – is the largest group: they cover about half of all spending. Their spending patterns have fallen halfway between the other two.

This has not been a unifying experience for the country: for some towns, it remains devastating. For others, the (first) lockdown moment is passing. For some families, it has meant running up savings. For others, it will have eaten them.

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