How close is the UK economy to recovering from the pandemic?

Not too far away, judging by results released by the UK’s major banks in recent days.

NatWest Group, Lloyds Banking Group, Barclays, Virgin Money and now HSBC have all released millions of pounds of provisions for bad debts arising from the pandemic, to varying degrees, with each signalling hope over the trajectory of the economy.

NatWest, which changed its name from Royal Bank of Scotland at parent group level last year, seemed particularly upbeat over the outlook. With the bank upgrading its forecast for UK economic growth this year to 7.3 per cent, after previously estimating a 4.8% rise, chief executive Alison Rose held out the prospect of a “more rapid recovery” from the crisis than previously thought.

The bank released a hefty £600m of provisions, which helped it record an operating profit of £2.5 billion for the six months to June 30. It had made a loss of £770 million for the first half of 2020, a period coinciding with the beginning of the pandemic.

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Speaking to journalists on Friday, Ms Rose signalled the bank’s comfort with the prevailing economic conditions, which NatWest indicated have been aided by the successful roll-out of vaccines, Government support measures and the easing of coronavirus restrictions. However, she was careful to sound a note of caution, acknowledging the fact that households and businesses continue to be safeguarded by those support measures.

“What we can see on the ground [is that] default levels remain incredibly low,” Ms Rose said. “UK business in particular has been very resilient during this period.

“Obviously, there is a lot of support still in place… but credit quality continues to remain good, defaults remain low.”

While Ms Rose said there was evidence of increased spending on debit and credit cards since coronavirus restrictions have started to ease, she added: “Until all of those support measures taper off, we remain cautious.”

The language was similar the day before when Lloyds, owner of Bank of Scotland and the UK’s biggest mortgage lender, reported that it had also released huge amounts of provisions for bad debts. Lloyds released £837m of provisions in reflection of the improved economic outlook, which helped it report a statutory pre-tax profit of £3.9bn for the half year to June 30. The bank had made a loss of £602m for the first half of 2020.

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Like Ms Rose, Lloyds’ interim chief executive William Chalmers, who is holding the reins until Charlie Nunn arrives from HSBC as the permanent successor to Antonio Horta-Osorio this month, highlighted the benefit to the economy from the vaccine roll-out and the easing of restrictions. But he also underlined that the pandemic was continuing to affect people’s everyday lives.

“The outlook remains uncertain,” Mr Williams cautioned.

Yesterday, HSBC gave its own verdict on the improving outlook, releasing £500m of provisions amid a strong performance by its UK business.

That such major and important supporters of households and businesses are in strong financial shape (Lloyds, NatWest, Barclays and HSBC have all resumed dividend pay-outs following a hiatus imposed by regulators) and seemingly more confident about the outlook is welcome as we hopefully begin to think of putting the pandemic behind us.

It is also, encouragingly, a stark contrast to the last time the UK economy was hit by such a major financial crisis, when both Royal Bank of Scotland and Lloyds required massive bailouts from the Government to prevent them from total collapse.

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While those banks were part of the problem during the Great Financial Crisis of more than a decade ago, they have contributed to the solution this time. Along with their major banking peers, they have stepped in to provide critical loans (largely guaranteed by the UK Government) and mortgage holidays after the country was plunged into lockdown and economic activity ground to a near-halt when the pandemic took hold early last year.

Such support has been vital in protecting households and safeguarding business in the sixteen or more months since. However, the job is far from over.

As Ms Rose cautioned on Friday, the continuation of Government support measures is a key factor in creating the “benign” credit conditions that are currently being observed by the bank.

However, there is every chance that those conditions will become more challenging when that support is cut off.

The furlough scheme is now in the process of being wound down, with the Government having scaled down its contribution to salaries from 80 per cent to 60%. Employers must now contribute 20% towards the salaries of furloughed staff, as well as their national insurance contributions and pension costs. The scheme will be wound down completely by September 30, and it is widely expected that unemployment will rise when the support is withdrawn.

A survey published by the British Chamber of Commerce yesterday found that one in five businesses plans to make staff redundant in response to changes to the furlough scheme. Jane Gratton, head of policy, declared that the withdrawal “will likely result in many thousands of people being released back into the labour market”, and emphasised the urgency for people to be retrained to help meet the skills shortages in other parts of the economy.

Meanwhile, we are now beginning to see evidence of rising company failures in Scotland, following a period during which firms have been kept alive by support measures. The Accountant in Bankruptcy last week reported 163 cases of firms entering liquidation in the quarter to June 30, up 65% on the 99 recorded in the same period in 2020. And it found that the number of liquidations was up around 80% on the three months to March 31, during which 91 were recorded.

The warning signs are flashing, therefore, that further hardship is around the corner as people and businesses face up to life without the support that has been so crucial over the last 16 months.

Ms Rose has made it a hallmark of her tenure at NatWest so far to emphasise the bank’s “purpose”.

It is hard to think of a more meaningful interpretation of that word when it comes to the role banks can play by giving households and businesses as much leeway and support as possible to help them get to the other side of this awful crisis.