UK recovery continues to lose steam as August GDP rises 2.1%

Britain’s economy expanded by a lower-than-expected 2.1% in August compared to July, as the recovery from the coronavirus lockdown continued to lose momentum, official data revealed on Friday.

Output expanded by 6.6% in July and 8.7% in June, after the record 20.4% slump in the second quarter of 2020, the Office for National Statistics (ONS) said. Economists had been expecting monthly growth of 4.6%.

The slowdown came despite a boost for the hospitality sector in August through the government’s Eat Out to Help Out scheme. The meal subsidy scheme helped boost output in the food and accommodation industry by 71.4% in the month.

The economy remained 9.2% smaller than the level recorded before the pandemic hit Britain, the ONS said. The services sector grew by 2.4% from July, slower than expectations for growth of 5.0%.

“The economy continued to recover in August but by less than in recent months. There was strong growth in restaurants and accommodation due to the easing of lockdown rules, the ‘eat out to help out scheme’, and people choosing summer ‘staycations’. However, many other parts of the service sector recorded muted growth," said ONS deputy national statistician for economic statistics Jonathan Athow.

“Construction also continued its recovery, with a significant boost from housebuilding. There was limited growth in manufacturing, which remains down on its pre-pandemic level, with car and aircraft production still much lower than the start of the year.”

Economists at Pantheon Macros said: "In one line: No V-shaped recovery here."

"Looking ahead, we look for a further month-to-month increase in GDP of only about 2% in September, primarily reflecting the further normalisation of output in the education sector."

The EY ITEM Club said it believed the final three months of the year will be more challenging for the UK economy, with limited growth, due to "a likely significant rise in unemployment, waning pent-up demand, and increased restrictions on activity due to rising Covid-19 cases".

"Additionally, business caution and reluctance to invest in Q4 may be magnified by uncertainties over the future UK-EU trading relationship. There may, however, be some boost to growth in Q4 from significant stockbuilding ahead of the 31 December deadline for UK-EU talks."