By Jeph Ajobaju, Chief Copy Editor
Official figures show that the economy of the United Kingdom grew 4.8 per cent between April and June (Q2 2021), as most businesses emerged from lockdown, which lines up with Boris Johnson’s enthusiasm.
The Prime Minister predicted on July 28 that the UK would see a “steady” economic recovery post-pandemic, but warned there would be “bumps on the road” in the next year.
He told LBC radio in London that job numbers were “increasing”, but a “cautious approach” was needed, as reported by the BBC.
It came as the International Monetary Fund (IMF) said it expected UK economic output to grow by 7 pe cent this year – up from the 5.3 per cent it predicted in April.
Lift from retail, restaurants, hotels, education
Latest data from the Office for National Statistics (ONS) showed that the expansion in gross domestic product (GDP) in Q2 2021 was fuelled by retail, restaurants and hotels.
Education also boosted the economy as schools reopened in the second quarter. However, the BBC adds, the figure was slightly below the 5 per cent the Bank of England expected.
The UK economy is now 4.4 per cent smaller than it was before the pandemic.
Growth in Q2 2021 contrasts with Q1 2021, when the economy shrank 1.6 per cent while Covid restrictions were still in place.
“Today’s figures show that the economy is recovering very strongly, exceeding many people’s expectations,” Chancellor Rishi Sunak told the BBC.
“But I’m not complacent. The economy and our public finances have experienced a significant shock. It is going to take us time to fully recover from that.”
Aiming for pre-pandemic GDP
Capital Economics said it expected the economy to return to pre-Covid levels later this year.
“We are comfortable with our view that monthly GDP will return to its February 2020 pre-pandemic size by October and that the economy may yet surprise most forecasters by emerging from the pandemic without much scarring,” said senior UK economist Ruth Gregory.
In April, non-essential retailers reopened, as well as gyms, hairdressers and outdoor dining. In May, pubs, restaurants and cafes were allowed to serve customers indoors, while theatres, galleries and cinemas were allowed to open their doors.
The main driver of growth was consumer spending, which rose 7.3 per cent over the quarter, ahead of expectations.
Also in Q2 2021, job vacancy numbers surpassed pre-pandemic levels, with 862,000 jobs on offer – 77,500 higher than Q1 2020 – driven by vacancies in hospitality and retailing, according to ONS data.
The twin main drivers of the vacancies are a lack of skilled workforce, and Brexit which has reduced the number of British workers born in the European Union (EU).
UK-born workers are fewer, too, and immigration to the country has become more difficult.
The number of people on payrolls grew in June, showing the biggest rise since the start of the pandemic. It increased by 356,000 in June to 28.9 million, the data shows, as reported by the BBC.
A nation of social people
The BBC explains that the UK is not just a nation of shopkeepers, but social animals. And it’s that large proportion of “social spending” – on hotels, restaurants and leisure – that made the economy so vulnerable to lockdowns.
The UK was the fastest shrinking of the G7 nations in 2020 and conversely, maybe one of the fastest of the big players to recover in 2021 as restrictions lift.
The consumer has led the way, driving output to within 5 per cent of pre-pandemic levels, despite the Delta variant of Covid. It’s growth that some feared just months ago would take far longer to materialise.
But what happens next is still uncertain. The safety net that has protected livelihoods – the furlough scheme – ends in October. Economists think there will be some job losses, albeit far fewer than assumed a year ago.
The biggest risk, however, will come from further variants and a resurgence in infections and restrictions. Policymakers are assuming we’re done with the latter.
A year ago, they were predicting there’d be no more national lockdowns: let’s hope they’re right this time.
If so, the impressive vaccination rate in the UK should stand the economy in good stead – others are not that fortunate.
Be it health or wealth, it’s access to vaccinations that may increasingly make the difference between the haves and have-nots as we try to escape the grip of this pandemic.
Health sector
At the end of the quarter in June, the monthly growth is estimated at 1 per cent, slightly more than most economists expected.
Pantheon Macroeconomics said that nearly half of the economic expansion in June came from activity in the health sector, “reportedly due primarily to a surge in people visiting their GP”.
Hargreaves Lansdowne said: “Fears that the arrival of the Delta variant and the ‘pingdemic’ that followed might impact growth have so far not really materialised.”
However, the ONS revised down its figure for May from 0.8 per cent to 0.6 per cent during a month of heavy rainfall.
The economy has been supported by the government’s wage support scheme. But from July, employers have had to make contributions to staff wages and the scheme is set to close by the end of September.
‘It’s been very tough’
The economy is rebounding, but the pandemic is still having an impact on the restaurant trade, according to Asma Khan, founder and owner of Darjeeling Express, a family-owned Indian restaurant in London’s Covent Garden.
“It’s been very tough,” she told the BBC. “The insecurity has been very hard to deal with, the way the lockdown happened in March of last year.”
Khan said that she was “grateful” for the furlough scheme which allowed her to keep her entire staff on.
Even so, “I was still liable for all the rents and all the financial costs mounted up,” she added.
There is, however, “a lot of optimism”, Khan said. People are booking months in advance to dine at her restaurant, which recently welcomed comic actors Paul Rudd, of the US, and Canadian Dan Levy.
“We had, I think, 1,300 bookings in five hours when we started opening all up all the other dates,” she said.
Khan said the changing nature of the UK’s travel restrictions remained a concern as businesses like hers in central London were “completely dependent on tourists”.
“People are worried because this whole insecurity of the red list, the amber list. This fluctuation is basically deterring a lot of people, except the very brave, to want to come in because they don’t know whether the status of their country is going to change by the time they’re ready to go back.”
Following the release of second-quarter GDP figures, Sunak said the UK had “the fastest quarterly growth rate among the G7 economies”.
But Pantheon Macroeconomics reiterated that “the UK economy almost certainly was the hardest hit by Covid-19 in the G7.”
While UK GDP is still 4.4 per cent smaller than its pre-pandemic level, the US has seen its economy recover, making it 0.8 per cent larger than before Covid.
Pantheon also said France’s economy was 3.3 per cent below pre-pandemic levels, Germany was 3.6 per cent below and Italy’s GDP was 3.8 per cent lower.
Japan and Canada have yet to report up-to-date figures, but “both economies had fared much better than the UK in previous quarters,” Pantheon said: