Economic Growth in UK Continues – But Shrinks To Microscopic Level

By Ricky Browne

The good news is the UK economy continues to grow as it looks to put the pandemic behind it. But the bad news is that you might have needed a microscope to see it.

“Gross domestic product (GDP) is estimated to have grown by 0.1% in July 2021, and remains 2.1% below its pre-coronavirus (COVID-19) pandemic level (February 2020),” the Office of National Statistics (ONS) reported  today.

As minimal as it might have been, the growth does represent six months GDP growth – though significantly behind the one percent growth experienced for the month of June.

The best performing sector was production, with output increasing by 1.2 percent for the month. It might not be green friendly, but that sector was largely boosted by the reopening of an oil field production site, which had previously been closed for maintenance.

The service sector as a whole was flat, and remained 2.1 percent below pre-pandemic levels, the ONS said.

But some part of the service sector did better than others, with arts, entertainment and recreation activities growing by nine percent – led by the reopening of sports clubs, amusement parks and festivals as of July 19.

That suggested that there would be even more growth for those activities in August which would have benefited from a whole month of opening, rather than just the 12 days experienced in July.

But the positive effect of that growth was hit by a fall of 0.3 percent in other consumer-facing services. That represented the first fall since January 2021, and was “mainly because of a 2.5 percent fall in retail sales” the ONS said.

That fall could have been due to less than ideal weather, though that should be nothing new for the British consumer. The ‘pingdemic’ also came in for some blame, with people being required to stay at home if they were warned by the NHS Test and Trace app that they had been near to someone who had tested positive for Covid.

Another problem could be supply – where supermarket chains and fast food chains have had interrupted supply due to a shortage of lorry drivers. Empty supermarket shelves, or at least fewer items, could have resulted in lower spending. That could be a temporary problem that could be solved with the increase of salaries for lorry drivers, or pulling in new drivers from outside of the UK.

The growth in the services sector “partly reflects the gradual reopening of accommodation and food service activities, the reopening of non-essential stores, and the increase in school attendance compared with the previous three months (February to April 2021),” the ONS said.

The worst performing sector was construction, however, which declined by 1.6 percent in July – its fourth consecutive month of contraction. The sector is now 1.8 percent below the pre-pandemic level in February 2020.

Could July be a blip on the way back to pre-pandemic numbers, or does it represent a return to negative growth?

The hope might be that August will be a better month for growth, even if the weather was still off-putting. With many people holidaying within the country instead of risking going off abroad, it could mean a bigger spend for local hotels and restaurants, as well as increased spending for petrol and travel expenses.

Globally, the world economy is expected to grow by six percent in 2021 and another 4.9 percent for 2022 as it starts to recover from the pandemic according to the IMF.

The IMF says that the UK had negative growth of -9.8 per cent for 2020, and is expected to have seven percent growth this year, followed by 4.8 percent next year.

That aligns it with the picture for the United States, which saw its economy shrink by a comparatively small 3.5 percent in 2020 and is expected by the IMF to have growth of seven percent for 2021 and 4.9percent for 2022.

The UK is expected to have higher growth than every other advanced economy according t the IMF – ahead of EU countries, Canada and Japan.

Emerging and developing economies have a poorer outlook, except for China which is expected to have growth of 8.1 percent this year and 5.7 percent next year and India which is expected to have growth of 9.5 percent for 2021 and 8.5 percent for 2022.