The UK economy grew by 4.8% in the second quarter of the year as consumers rushed to spend lockdown savings following the easing of coronavirus restrictions in April.
ONS figures for the quarter, released today (12 August), showed that services growth led the way with a 5.7% increase in Q2 following a contraction of 2.1% in Q1.
Hotels, cafes and shops
Accommodation and food service activities increased by 87.8%, with wholesale and retail up by 12.8% in response to the re-opening of indoor hospitality, Euro 2020 and the reopening of non-essential retail.
The level of GDP is now 4.4% below where it was pre-pandemic in Q4 2019.
City AM reports that while the figures were in line with market expectations, they were slightly below the Bank of England’s forecast of 5%.
However, the ONS said that the UK’s GDP growth for Q2 was faster than that of the US, France, Germany, and Spain.
Path to recovery
Overall, the level of output in June was only 2.2% below the level in February 2020, reports the FT.
This puts the economy on a path to return to pre-pandemic levels of output before the end of the year if the virus remains under control.
Ruth Gregory, senior UK economist at Capital Economics, said the monthly figures showed that “GDP will return to its February 2020 pre-pandemic size by October and that the economy may yet surprise most forecasters by emerging from the pandemic without much scarring”.
However, there is also concern that the rising Delta variant is causing growth to slow.
James Smith, developed markets economist at ING bank, warned the FT: “The sharp rise in Covid-19 cases through July appears to have stopped the recovery in its tracks.”
Goods exports up
The Guardian reports separate ONS figures for trade which showed exports to the EU were above pre-Brexit levels after a small rise from £14.1bn to £14.3bn in June, having fallen at the start of 2021.
As economies emerged from lockdown, UK goods exports to the EU rose £1.2bn (9.1%) to £14.1bn in May 2021, followed by a further £200m (1.2%) to £14.3bn in June 2021.
Exports to non-EU nations dropped by £800m in June though, resulting in an overall £600m drop in exports and an increased trade deficit.
More action needed
Commenting on ONS Trade figures for June, William Bain, head of trade policy at the British Chambers of Commerce (BCC), said that while EU trade exports in Q2 were up 26% over Q1, and imports by 12%, the overall trade deficit widened to £5.7bn, “showing more action is needed to promote export-led growth”.
“This is a further signal of the dampening effect on EU-UK trade caused by the move to the new trading arrangements under the TCA. We will continue to monitor this over the coming months as further data emerges,” he said.
Services exports down
Key findings in the ONS figures for UK trade in Q2 also include the following:
- Overall goods exports increased by 9.6% driven by increases in chemicals, machinery and transport equipment, and material manufacturers
- Services exports were down 4.7% with financial, travel and insurance all falling
- Imports of goods were up 10%
- Imports of services were down by 3.8%