UK GDP: Slower growth in August could signal a hard winter


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The Office for National Statistics said in a statement Friday that the UK economy grew by 2.1% in August. The consensus expectation among economists was for a 4.6% increase, according to Capital Economics.
It was the fourth consecutive month of economic growth following a 20% contraction in April that led to the worst quarterly decline on record. But growth rates were stronger in May (2.7%), June (9.1%) and July (6.4%), signaling that the recovery is losing momentum. GDP remains 9.2% below the levels seen in February before the coronavirus hit, the ONS said.

Accommodation and food services were one of the few bright spots, expanding 71.4% in August as consumers made extensive use of the government’s “Eat Out to Help Out” program, which subsidized 100 million meals at restaurants, cafés and pubs, according to the Centre for Economics and Business Research.

But gains elsewhere were unimpressive. In construction, output rose by 3% leaving it almost 11% below its pre-crisis peak, while manufacturing grew just 0.7%.

The disappointing data comes as fresh restrictions introduced in September to curb a second wave of coronavirus infections risk undermining growth even more. Cases continue to climb, far outstripping infections recorded in April, raising the prospect that rules could be tightened further.

Government support for workers, businesses and homeowners is also unwinding from the end of October, which likely means more job losses and weaker consumer spending. UK companies already shed nearly 700,000 jobs between March and August, and the Bank of England warned in August that 2.5 million people could be out of work and looking for jobs by the end of the year.

“With the government’s fiscal support unwinding, the next few months will almost certainly be worse,” Ruth Gregory, senior UK economist at Capital Economics said in a research note.

Capital Economics expects GDP to increase 2% in September before flatlining in the last three months of the year. Stagnation in the fourth quarter could be followed by worse in early 2021, especially if talks on a new trade deal between Britain and the European Union fail.

“The big risk now is more restrictions and a no deal Brexit send the recovery into reverse,” Gregory added.

Without a post-Brexit deal, trading arrangements and supply chains could be thrown into chaos. Even if the two sides reach an agreement, UK businesses will face billions of dollars in added costs relating to border checks and customs rules.

“A long-lasting recovery is by no means assured,” Rain Newton-Smith, chief economist at the Confederation of British Industry, the main business lobby, said in a statement. “While necessary, the combination of restrictions re-introduced in September and rising infections will be weighing on already fragile business and consumer confidence,” she added.

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