Slow growth in August sets back recovery of British economy

LONDON • Britain's economy grew much more slowly than expected in August, setting back its recovery from the coronavirus lockdown, with much of what growth there was down to a one-off government restaurant subsidy programme, official data showed yesterday.

Gross domestic product rose by 2.1 per cent from July, its slowest month-on-month increase since the economy began its recovery in May after a record slump, and not even half the median forecast of 4.6 per cent in a Reuters poll of economists.

"While the latest data confirms a rebound in economic activity continued into August, the sharp slowdown in growth indicates that the recovery may be running out of steam, with output still well below pre-crisis levels," said Mr Suren Thiru, head of economics at the British Chambers of Commerce.

"The increase in activity in August largely reflects a temporary boost from the economy reopening and government stimulus, including the Eat Out To Help Out scheme, rather than proof of a sustained V-shaped recovery."

More than half of the economic growth in August came from the accommodation and food sector, where output surged by 71.4 per cent, boosted by the Eat Out To Help Out scheme to subsidise meals and easing lockdown restrictions, the Office for National Statistics (ONS) said.

The pound weakened against the US dollar and the euro after the data was released.

The economy - which shrank more than that of any other Group of Seven nation in the April-to-June period - remained 9.2 per cent below its level just before the pandemic hit Britain, the ONS said. "The economy continued to recover in August but by less than in recent months," said ONS deputy national statistician for economic statistics Jonathan Athow.

The dominant service sector grew by 2.4 per cent from July, a lot slower than expectations for growth of 5 per cent. Growth in the smaller manufacturing and construction sectors also fell short of forecasts.

Economists have warned that the British economy may struggle to grow in the months ahead as the number of Covid-19 cases began to rise last month and the government responded by tightening its restrictions on people gathering together.

Bank of England (BOE) governor Andrew Bailey said on Thursday that risks to the economy were "very much on the downside" and the central bank was ready to use its policy firepower to limit the impact of a second wave of infections. The BOE is expected to increase its bond-buying programme next month to pump more stimulus into the economy.

Britain is also facing the risk of failing to secure a trade deal with the European Union, with negotiations still ongoing ahead of the Dec 31 expiry of the country's post-Brexit transition period.


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A version of this article appeared in the print edition of The Straits Times on October 10, 2020, with the headline Slow growth in August sets back recovery of British economy. Subscribe