- Easing of restrictions boosts activity across hospitality
- GDP now 4.4% below pre-pandemic level
- Trade with EU continues to recover
- BoE predicts slower increase in second half of 2021
By Harry Daniels
LiveSquawk News
@harrydaniels71
12 August 2021 | 09:00 GMT
LONDON – The UK economy rebounded as expected in the second quarter to leave GDP growth roughly 4% below pre-pandemic levels. The expansion coincided with the reopening of indoor dining and a general relaxation of coronavirus restrictions over the period.
The Office for National Statistics estimated GDP growth increased by 4.8% in last quarter, which in line with the median forecast and up from the contraction of 1.5% in the first quarter. On the month, GDP expanded by 1%, outpacing the 0.8% forecast and the revised 0.6% print.
In terms of the sector breakdown, quarterly increases were recorded in services, production, and construction output.
Unsurprisingly perhaps, the largest contributing sectors were wholesale and retail trade, accommodation and food service activities, and education. ONS statistician Jonathan Athow said, “The UK economy has continued to rebound strongly, with hospitality benefiting from the first full month of indoor dining, while spending on advertising was boosted by the reopening of many services. Health services also showed growth, with many more people visiting their GP.”
Services led the way
The ONS said services output rose 5.7% on the quarter, following a 2.1% contraction in the previous three-month period. Within the sector, the statistics office said accommodation and food service activities increased a striking 87.8% in Q2, while wholesale and retail trade rose 12.8% in response to the re-opening of indoor hospitality, the Euro 2020 football tournament, and the reopening of non-essential retail. Combined, these consumer-facing services increased 16.7%.
ING’s Developed Markets Economist James Smith said, “The latest UK GDP data confirms what we already knew – that the economy was on fire through the second quarter.
“Of course, this is largely ‘old news’. The sharp rise in Covid-19 cases through July appears to have stopped the recovery in its tracks. Mobility levels – measured either by Google data or public transport usage – have plateaued, while aggregate spending has ticked slightly lower.”
Second-quarter production output rose 0.5% after falling 0.5% in the three months prior. The main driver of the rebound was a 1.8% gain in manufacturing, with activity focused on food products, beverages tobacco, machinery and equipment. Gains were partially offset by a 16.7% drop in car production, which is still suffering from a global semiconductor shortage.
Trade balance with EU continued recovery
Despite an apparent widening of the UK’s total trade balance, data from the ONS highlighted an improving picture for trade with the EU.
The ONS said that the total trade deficit (excluding precious metals) widened by GBP3.6bln to GBP5.2bln in the three-months to June. It said total exports of goods, excluding precious metals, were GBP9.1bln – or 12.5% – higher than in Q1 and driven almost entirely by increasing exports to the EU. While imports were GBP12.8bln (12.4%) higher in Q1, with increases in imports from EU and non-EU countries.
Exports of goods to the EU, excluding precious metals, were above pre-EU exit levels in May and June 2021, rising GBP1.2bln (9.1%) to GPB14.1bln in May 2021, followed by a further GBP0.2bln (1.2%) to GBP14.3bln in June 2021.
“While goods imports from both EU and non-EU countries increased in June, total goods exports were down with car exports faltering due to previous months’ production problems,” said ONS’ Athow.
Looking to the future
Asked for a reaction to the numbers, the Chancellor of the Exchequer Rishi Sunak said: “Today’s figures show that our economy is on the mend.”
The Bank of England’s Monetary Summary last week predicted second quarter growth of 5%. It also downgraded its third quarter growth estimate to around 3% on the continued prevalence of the Delta variant. The bank said, “UK GDP is projected to recover further over the remainder of the year, reaching its pre-pandemic level in 2021 Q4, with demand growth boosted by a waning impact from Covid. Further out, the pace of GDP growth is expected to slow towards more normal rates, partly reflecting the gradual tightening in the stance of announced fiscal policy.”
ING’s Smith said, “In practice, we think the July and August GDP readings will average at roughly 0.2-0.3%, which translates into overall third-quarter growth in the region of 1.5% – quite a bit lower than the 3% figure the Bank of England is pencilling in.”
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- UK Q2 growth expands in line with forecast
- Easing of restrictions boosts activity across hospitality
- GDP now 4.4% below pre-pandemic level
- Trade with EU continues to recover
- BoE predicts slower increase in second half of 2021
By Harry Daniels
LiveSquawk News
@harrydaniels71
12 August 2021 | 09:00 GMT
LONDON – The UK economy rebounded as expected in the second quarter to leave GDP growth roughly 4% below pre-pandemic levels. The expansion coincided with the reopening of indoor dining and a general relaxation of coronavirus restrictions over the period.
The Office for National Statistics estimated GDP growth increased by 4.8% in last quarter, which in line with the median forecast and up from the contraction of 1.5% in the first quarter. On the month, GDP expanded by 1%, outpacing the 0.8% forecast and the revised 0.6% print.
In terms of the sector breakdown, quarterly increases were recorded in services, production, and construction output.
Unsurprisingly perhaps, the largest contributing sectors were wholesale and retail trade, accommodation and food service activities, and education. ONS statistician Jonathan Athow said, “The UK economy has continued to rebound strongly, with hospitality benefiting from the first full month of indoor dining, while spending on advertising was boosted by the reopening of many services. Health services also showed growth, with many more people visiting their GP.”
The ONS said services output rose 5.7% on the quarter, following a 2.1% contraction in the previous three-month period. Within the sector, the statistics office said accommodation and food service activities increased a striking 87.8% in Q2, while wholesale and retail trade rose 12.8% in response to the re-opening of indoor hospitality, the Euro 2020 football tournament, and the reopening of non-essential retail. Combined, these consumer-facing services increased 16.7%.
ING’s Developed Markets Economist James Smith said, “The latest UK GDP data confirms what we already knew – that the economy was on fire through the second quarter.
“Of course, this is largely ‘old news’. The sharp rise in Covid-19 cases through July appears to have stopped the recovery in its tracks. Mobility levels – measured either by Google data or public transport usage – have plateaued, while aggregate spending has ticked slightly lower.”
Second-quarter production output rose 0.5% after falling 0.5% in the three months prior. The main driver of the rebound was a 1.8% gain in manufacturing, with activity focused on food products, beverages tobacco, machinery and equipment. Gains were partially offset by a 16.7% drop in car production, which is still suffering from a global semiconductor shortage.
Despite an apparent widening of the UK’s total trade balance, data from the ONS highlighted an improving picture for trade with the EU.
The ONS said that the total trade deficit (excluding precious metals) widened by GBP3.6bln to GBP5.2bln in the three-months to June. It said total exports of goods, excluding precious metals, were GBP9.1bln – or 12.5% – higher than in Q1 and driven almost entirely by increasing exports to the EU. While imports were GBP12.8bln (12.4%) higher in Q1, with increases in imports from EU and non-EU countries.
Exports of goods to the EU, excluding precious metals, were above pre-EU exit levels in May and June 2021, rising GBP1.2bln (9.1%) to GPB14.1bln in May 2021, followed by a further GBP0.2bln (1.2%) to GBP14.3bln in June 2021.
“While goods imports from both EU and non-EU countries increased in June, total goods exports were down with car exports faltering due to previous months’ production problems,” said ONS’ Athow.
Asked for a reaction to the numbers, the Chancellor of the Exchequer Rishi Sunak said: “Today’s figures show that our economy is on the mend.”
The Bank of England’s Monetary Summary last week predicted second quarter growth of 5%. It also downgraded its third quarter growth estimate to around 3% on the continued prevalence of the Delta variant. The bank said, “UK GDP is projected to recover further over the remainder of the year, reaching its pre-pandemic level in 2021 Q4, with demand growth boosted by a waning impact from Covid. Further out, the pace of GDP growth is expected to slow towards more normal rates, partly reflecting the gradual tightening in the stance of announced fiscal policy.”
ING’s Smith said, “In practice, we think the July and August GDP readings will average at roughly 0.2-0.3%, which translates into overall third-quarter growth in the region of 1.5% – quite a bit lower than the 3% figure the Bank of England is pencilling in.”