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* August PMI data rises to highest in nearly 7 years
* UK retail sales beat forecasts in July, above year-ago
levels
* Public debt swell above 2 trillion pounds
* Economists warn rebound in consumer demand may fade
* Industrial orders and consumer confidence remain subdued
(Adds GfK consumer sentiment, CBI orders, furlough data)
By David Milliken, Andy Bruce and William Schomberg
LONDON, Aug 21 (Reuters) - Britain's economic recovery from
the shock of the COVID-19 pandemic has gathered pace, data
showed on Friday, but government borrowing rose past the 2
trillion pound ($2.6 trillion) mark and fears of future job
losses are mounting.
Retail sales rose above pre-pandemic levels in July, the
first full month for many shops reopening after lockdown, and
August's Purchasing Managers' Index (PMI) data showed the
fastest growth in almost seven years.
But Britain's economy still faces a long recovery after
shrinking by a record 20% in the second quarter, the largest
decline of any big country.
"The UK is still seeing a V-shape bounce in activity. But
... a hot summer can quickly turn to a cold autumn," HSBC
economist Liz Martins said, pointing to a softening in euro zone
business activity as coronavirus cases begin to rise again.
Retail sales in July were 1.4% above year-ago levels and
3.0% above their level before the pandemic, the Office for
National Statistics said.
August's preliminary composite PMI, which covers most
businesses outside retail, hit its highest level since October
2013.
But employers are increasingly planning to shed jobs and
were making staff redundant rather than bringing them back from
a government-subsidised furlough scheme that expires in October.
"Scarring from the pandemic and lingering doubts about the
sustainability of recovery resulted in a need to cut overheads,"
said Tim Moore, economics director at IHS Markit, which compiles
the PMIs.
The Bank of England forecasts unemployment will reach 7.5%
by year-end, almost double its most recent reading.
Separately, the Confederation of British Industry said
manufacturing orders were "severely depressed", with little
improvement in August.
Stuttering PMI surveys for the euro zone -- where countries
exited lockdown earlier than Britain -- suggested the boost from
pent-up demand was already fading.
JOB LOSSES
Retail sales are only part of overall household spending. A
GfK survey showed no improvement in consumer confidence since
early July.
Within retail, different businesses have had contrasting
fortunes. Grocery sales are 3% up on the year and online sales
are 50% higher than before the pandemic. But sales volumes at
clothing and footwear stores are 25% lower than last year.
Stores including Marks & Spencer, Boots and
John Lewis have announced plans for major job cuts.
Friday's data also laid bare the impact of increased public
spending and a slide in tax revenues on the public finances.
Public sector net debt exceeded 2 trillion pounds in July
for the first time, and is its highest since 1961 as a share of
gross domestic product.
Government borrowing so far this financial year is 150.5
billion pounds, almost seven times higher than in the same
period in 2019 though below the 178.8 billion pounds Britain's
budget forecasters predicted last month.
The government has spent more than 35 billion pounds so far
on its job support scheme, the largest single measure to tackle
the economic impact of the pandemic.
Government figures showed 6.8 million jobs were furloughed
at the end of June, down from 8.9 million in early May.
($1 = 0.7579 pounds)
(Editing by Catherine Evans)
