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Livesquawk - UK Recovery Falters As Service Sector Stalls
UK Recovery Falters As Service Sector Stalls


- Monthly GDP misses forecasts as economy decelerates

- No services growth despite ‘Freedom Day’

- Production rebound countered manufacturing decline

- BoE Governor notes some “levelling off” in recovery


By Harry Daniels

LiveSquawk News




10 September 2021|10.30 GMT


London – UK commercial activity increased for a sixth consecutive month in July, but that was where the good news ended as services, the main engine of the economy, experienced next to no growth. This left the economy 2.1% below its pre-pandemic level.


The Office for National Statistics estimated that GDP grew a tepid 0.1% on the month, a significant miss from the 0.5% forecast and the 1.0% rise in June.


The underlying picture was slightly more encouraging but disappointed. In the three months to July, GDP grew 3.6%, which was below the 3.8% expected but in line with the previous level.


Of the four main sectors that make up the majority of the economy, production held up best, with an increase of 1.2% in July versus 0.4% predicted. Mining and quarrying contributing most to the expansion, with the ONS noting that the strong growth in the sector mainly reflected the reopening of an oil field production site temporarily closed for planned maintenance.


Offsetting the gains was services, normally the engine room for activity. The index for the sector was flat in July compared to a forecast rise of 0.6% and 1.5% previously. Within services, the ONS said arts, entertainment and recreation activities saw strong growth of 9.0% in July, reflecting a boost from outdoor activities such as visits to sports matches, amusement parks and festivals following the easing of restrictions on social distancing on 19 July in England. 


After five consecutive months of growth, manufacturing was flat month-on-month in July, missing the 0.1% projected and the 0.2% mark in the previous month.


Construction output fell 1.6% on the month, worsening from last month’s 1.3% fall.


RBC Europe’s Cathal Kennedy said, “Stepping back from today’s monthly GDP print, it’s worth pointing out that the initial recovery in UK output has been rapid; GDP has grown by a little over 6% since the reopening process began in March and is now just […] below its pre-crisis level.


“However, making up that last GDP ‘lost’ portion of output will be the hard bit as the early gains from the reopening have been largely exhausted.”


Bank of England Governor Andrew Bailey admitted earlier this week that there would be some “levelling off” in the recovery. Appearing in front of the Treasury Select Committee, he said that the immediate boost from reopening the economy had faded.


RBC’s Kennedy said, “Third-quarter GDP is likely to struggle to meet the MPC’s forecast from the August MPR for growth of 3.9% quarter-on-quarter. Indeed, GDP growth looks as if it may undershoot our more modest expectation of 2.7% q/q in Q3 given this starting point.


“The MPC can still be confident that output should return to its pre-crisis level by the end of this year though this latest GDP release should temper expectations that the return to those pre-crisis levels will occur earlier.”