The UK economy picked up momentum in August, according to official figures, but grew slower than expected after the spread of the Delta variant of coronavirus halted the recovery in July.
Gross domestic product rose 0.4 per cent in August from the previous month, according to initial estimates released by the Office for National Statistics on Wednesday.
An initial estimate that the economy had expanded by 0.1 per cent in July was cut to a 0.1 per cent decline, driven by revisions to data for the motor industry and oil and gas sector.
August’s tentative growth reflected a return to activity over the summer, but economists warned that the UK’s recovery could yet stall as the country grappled with rising living costs and supply shortages.
Falling slightly short of the growth forecast by economists, it left output 0.8 per cent below its pre-pandemic level, according to the ONS.
Paul Dales, chief UK economist at the consultancy Capital Economics, said the improvements in August “probably had a lot to do with the fading of the restraint from July’s ‘pingdemic’” when strict isolation requirements for contacts of people with Covid meant at one point more than 1m people were isolating.
ONS figures showed that increased activity in accommodation and food services and arts and entertainment drove August’s recovery, while mining and quarrying also expanded rapidly.
Across all consumer-facing services output increased 1.2 per cent but remained 4.7 per cent below pre-pandemic levels.
Officials last month revised their assessment of GDP growth for the second quarter upward, to 5.5 per cent. But steadily rising coronavirus rates and a cost of living crisis, with inflation rising to 3.2 per cent in August, have clouded expectations of the speed of the recovery being maintained.
Martin Beck, senior economic adviser to the EY Item Club, said August’s “more robust performance” was a welcome improvement, supported further by a healthy labour market. But he said squeezed spending power and labour shortages would mean growth would probably slow over the next year.
The IMF warned on Tuesday that the UK’s recovery from coronavirus would probably lag behind other countries and by 2024 the economy would remain 3 per cent smaller than the level forecast. Other countries, it forecast, would return to the growth predicted before the pandemic.
With the uptick only modest in August, economists said a more sluggish near-term recovery could ease pressure on the Bank of England over an interest rate hike, aimed at preventing higher inflation becoming embedded in the economy.
“All told, we look for only a 1.2 per cent quarter-on-quarter rise in GDP in the fourth quarter, which probably would mean that the UK’s recovery still was less advanced than in most other advanced economies, and which should reassure the Monetary Policy Committee that it only needs to hike [the] Bank Rate gradually over the next 12 months,” said Samuel Tombs, chief UK economist at consultancy Pantheon Economics.
However, sterling rose slightly on the GDP data, as traders calculated that the BoE would still increase rates soon despite the modest growth. In early Wednesday trade the pound was up 0.3 per cent at $1.3635.