UK economic growth update

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Most forecasters on Thursday were able to boast of their accuracy in predicting that the UK economy will grow by 4.8% in 2019. Second quarterBut due to different views on the second half of 2021, far fewer people can look back at this year with a perfect record.

Under the headlines of the first estimate of the national accounts, the statistics released by the National Bureau of Statistics helped optimists and pessimists.

There is evidence that the best days of recovery have passed, and the rapid growth in the second quarter shows what may happen after Covid-19 subsides.

Although in the second quarter, GDP was 4.4% lower than the pre-pandemic peak in the fourth quarter of 2019, most economists believe that the economy will resume the output losses caused by the pandemic in the fourth quarter of this year.

But this will still make living standards about 3% lower than expected at the end of 2021 before the coronavirus outbreak.

For optimists, the most important factor in the data may be that household consumption accounted for 4.1 percentage points of the 4.8% GDP growth in the second quarter. Since consumption is still 7.3% below the peak in 2019, these data indicate that people still have room to reduce savings and further squander cash in the second half of the year.

There is more room for recovery in business investment, but this will depend on whether the company is confident in the broader economic outlook.

Alan Monks, a British economist at JP Morgan Chase, said that in general, the basic trend in the second quarter confirmed that the British economic recovery was “strong and there is a lot of room for follow-up.”

But Monks and other economists warned that the Delta Coronavirus variant appeared to weaken consumer confidence in July, reducing the likelihood of continued recovery in the second half of the year, thereby easing any optimism.

Government consumption higher than the level at the end of 2019 also shows downside risks Rich Sunak, The Chancellor of the Exchequer, determined to reduce spending after two years of crisis-related fire fighting.

Philip Rush, the founder of the consulting firm Heteronomics, said that the importance of consumer-oriented services in the second quarter is a bad omen for the next few months and accused the Bank of England in its August forecast. “Extremely optimistic.”

“Restaurant reservations and vaccination rates fell in July,” Rush pointed out, adding that “most other industries just limped up from the still downturn.”

Other economists are also cautious about forecasting future earnings in the second quarter. Rob Wood, a British economist at Bank of America, said that maintaining growth will become more difficult after closing the four-fifths gap caused by the crisis. “The main reopening gains have passed, and the policy will soon change from tailwind to headwind,” he said.

According to the UK National Bureau of Statistics, there are technical reasons to be more optimistic about the growth in the coming months, as unusual quirks inhibit certain elements of the June data.

The output of the mining and quarrying sectors, including North Sea Oil, fell by 11.9% in June alone, dragging down the entire production sector by 0.7%. According to the statistics agency, this was caused by the temporary closure of oil rigs for maintenance, making the North Sea’s monthly oil production at the lowest level since the monthly record was established in 1997.

Kallum Pickering, a British economist at Berenberg Bank, highlighted other UK-specific characteristics of these figures, especially in terms of public sector measurement, as schools are fully reopened, visits to general practitioner surgeries have surged, and hospital appointments have grown rapidly. , The measurement standards of the public sector are improving rapidly. Many other countries do not record the output of the public sector in this way. Pickering said that compared with other comparable economies, the impact is “enlarged the British economic cycle.”

“The UK suffered a greater-than-average decline during the lockdown, and then recovered relatively quickly,” he said.

Looking ahead, calculations by the Financial Times indicate that the UK economy will gain considerable momentum in the third quarter. Even if the output level in June did not improve in the next three months, the quarterly data will show a 0.8% increase.

Of course, this will not close the remaining gap with pre-pandemic output levels. To achieve this goal by October, the economy needs to grow by 0.7% per month-slightly higher than the growth rate in May, but well below the 1% in June. If it meets the expectations of most economists and regains lost ground by the end of 2021, it will only need to achieve monthly growth of 0.4% for the rest of the year.

Hande Küçük, deputy director of the National Institute of Economics and Social Research, stated that she expects the economy to embark on a faster track, at least in the third quarter, with growth “in the assumption of 19 cases of Covid-19 and cancellation of all domestic limit”.

Since then, she added that how much long-term damage the pandemic has caused and how to solve the inequality caused by the virus will become the most important issue.

The answers to these questions are not yet known, but when Sunak makes long-term public spending decisions based on the Office of Budget Responsibility’s mid-term forecast in late October, the fall will be of vital importance.