AJ Bell financial analyst discusses post-pandemic economic recovery

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“The latest figures from the labour market are certainly positive, but it’s probably best to keep the champagne on ice for now”, AJ Bell financial analyst states.

Data from the Office for National Statistics (ONS) shows that unemployment fell to 4.7% from February to April of this year, and that redundancies are now back to pre-pandemic levels.

Despite these positive results, Laith Khalaf, financial analyst at AJ Bell, argues that we will not know the true state of the post-pandemic economy until the end of the year.

Laith Khalaf comments:

“All the dials in the labour market are pointing in the right direction, but they’re heavily distorted by the gravitational pull of the furlough scheme, lockdown lifting bottlenecks, and the effect of annual comparisons now lapping the first wave of the crisis. We won’t get a clear picture of the health of the post pandemic economy until the back end of this year, and that means the Bank of England isn’t going to rush to any interest rate hikes in the next few months, even if the UK looks to be firing on all cylinders.

“Hospitality businesses are getting friction burns, as the entire sector opens up and looks for staff to service a horde of customers, hungry to make the most of their new freedoms. However, after an initial round of playing catch up, there’s only a certain amount of food and booze customers will want to consume and so the growth from reopening can’t be extrapolated infinitely. That applies across a whole host of sectors and indeed the UK economy at large.

“While the UK’s recovery looks to be shaping up nicely, the latest postponement of the end of lockdown restrictions serves as a reminder that the pandemic still has the capacity to derail the best laid plans. Unemployment is heading in the right direction, but we are still missing around half a million jobs compared to February of last year, not counting the uncertain future of those on furlough. This highlights the economic damage the pandemic has wrought and in all the progress we have made, it’s important to recognise that the reopening of the economy naturally brings with it an element of growth from a very low base. The latest figures from the labour market are certainly positive, but it’s probably best to keep the champagne on ice for now.”

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