Avison Young’s UK Cities Recovery Index predicts fast-tracked economic recovery.

Following the further easing of restrictions on May 17 as part of the government’s roadmap out of lockdown, data from Avison Young’s UK Cities Recovery Index indicates that the national economy is on track to return to pre-pandemic output levels as early as August, suggesting a faster and stronger recovery than previously predicted.

Nick Axford, Global Head of Insight at Avison Young, said: “While this May is set to be the wettest on record, the weather has done nothing to dampen the prospects of economic recovery, which we believe could come as soon as August. This is well ahead of previous expectations and heartening after a challenging 15 months for much of the UK. However, it is important to recognise that while the economy may reach its pre-pandemic size by August, its shape has likely been fundamentally altered. For example, while retail sales have been very encouraging and the proportion that took place online declined from a peak of over 35% in February to 30.0% in April, that’s still significantly above the pre-crisis level of around 20%. This reshaping of the economy clearly has implications for real estate with investment in non-residential buildings well below its pre-crisis peak and transport and physical retail remain severely challenged. The government also has to manage colossal public deficit while controlling inflationary pressures building from the recovery.

“Looking ahead, the return to the office will be a key metric in the economic performance of different cities. It has been a significant area of uncertainty over the last year, acting as a handbrake on the recovery of cities like London, but if the momentum that we have seen building continues to build then this will unlock further spending and economic growth.”

Data from Avison Young’s UK Cities Recovery Index, which measures performance across sectors that reflect different aspects of city life, including commercial activity, hotels and leisure, mobility, residential, retail and the return to office, reports that the national level Recovery Index rose to 89.7, its highest level since the onset of the pandemic, up 5% on last week and just 1% below Avison Young’s forecast, reinforcing confidence in its view of the path to recovery. Looking into the performance of different sectors reveals the following:

• The biggest gain was seen in hotel and leisure, which rose almost 20% to 59.6, close to its previous post-pandemic high of 63.5 in August;
• Mobility rose almost 10% to 95.8 and is also now at its highest level since last March;
• The return to office sector index did not see the same jump, but continued on its steady upward trajectory now reading 68.1, which is well ahead of the levels seen in September when official guidance encouraged a return to offices where possible.

Recent economic data corroborates the positive trends highlighted by the recovery index. HMRC data showed that payrolls increased for a fifth consecutive month in April to 28.3 million workers, although this is still below pre-pandemic levels, while median monthly pay rose for a third month in a row following a brief dip in January. Since the pandemic arrived in the UK, only three months (March and April 2020, and January 2021) have seen median pay fall, which helps to explain the faster than expected recovery. Overall, this supports Avison Young’s prediction that the economy will return to its pre-pandemic output ahead of expectations.