The UK economy barely grew in July, suggesting that the recovery from the COVID-19 recession is rapidly leveling off as consumer spending weakens and supply disruptions hamper production.
GDP expanded just 0.1 percent — one-tenth of the pace posted in June, the Office for National Statistics (ONS) said yesterday.
Economists surveyed by Bloomberg had expected 0.5 percent growth.
Photo: AFP
The figures left output 2.1 percent below the level in February last year, before the COVID-19 pandemic.
The slowdown heralds a return to more normal growth rates after pent-up demand following the lifting of restrictions in the spring saw the economy surge by almost 5 percent during the second quarter.
The ONS cited staff shortages and supply chain problems as an impediment to production. Services and manufacturing stagnated and construction output declined in the weakest month for the economy since January, when a third lockdown caused output to slump. Oil and gas provided the strongest boost as oil fields recovered from summer maintenance.
The loss of momentum in July, when the economy completed its reopening, also reflects concerns about the spread of the Delta variant of SARS-CoV-2 and a requirement for hundreds of thousands of people to stay at home after being pinged by a British National Health Service contact-tracing app.
The economy faces an uphill battle to achieve the near 3 percent growth in the third quarter forecast by the Bank of England last month. That would require output to expand by about 1.9 percent on average last month and this month. Bloomberg Economics forecasts growth of 2.2 percent with “downside risks” during the quarter.
Output in consumer-facing services fell by 0.3 percent in July, largely due a 2.5 percent fall in retail sales.
ONS Deputy National Statistician Jonathan Athow said that information technology, financial services and outdoor events — which could operate more fully in July — offset large falls in retail and law firms.
Rising costs and shortages of raw materials “pegged back” the construction sector, he added.
More difficulties lie ahead, with several support programs put in place to help people through the crisis due to end this month. They include the government’s flagship furlough plan, which was still supporting about 1.6 million people last month, and a temporary uplift to welfare benefits.
Meanwhile, workers and businesses face higher payroll taxes from April under an annual ￡12 billion (US$16.66 billion) plan announced this week to boost funding for the National Health Service and social care.
“It now looks like the wait for the UK to regain the ground lost since the start of the pandemic will last well into next year,” Fidelity International associate director Ed Monk said. “What’s concerning is that these numbers may not yet be showing the full effect of sustained supply chain bottlenecks.”
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