Britain's economy grew 4.8% in second quarter as lockdowns eased

Growth in hospitality, education and healthcare sectors deliver much-needed boost to Covid-hit UK

Britain's economy rebounded in the second quarter after more people dined out as restrictions eased, while education and health care also boosted output. AFP

Britain's economy grew 4.8 per cent in the second quarter of this year with growth accelerating 1 per cent in June alone, after the hospitality sector reopened when restrictions were eased.

Gross domestic product increased in May and June after the Office for National Statistics lowered its estimate for growth in May to 0.6 per cent from an 0.8 per cent increase and revised April’s output to 2.2 per cent from 2 per cent.

Chancellor of the Exchequer Rishi Sunak said the latest GDP figures showed the economy is on the mend with strong signs of recovery on the back of the UK’s vaccination drive and job support programmes.

“I know there are still challenges to overcome but I feel confident in the strength of the UK economy and the resilience of the British people,” he said.

“With the fastest quarterly growth rate among the G7 economies we have exceeded expectations and I’m pleased to see the UK bouncing back.”

The main driver of growth was consumer spending, which rose by 7.3 per cent over the quarter, ahead of expectations, after non-essential retailers reopened in April along with gyms, hairdressers and outdoor dining.

In May, restaurants and cafes were allowed to serve customers indoors, while theatres, galleries and cinemas were allowed to open their doors.

Education also boosted the economy after schools reopened in March along with health care as patients made more frequent trips to see doctors.

Meanwhile, total exports of goods, excluding precious metals, fell 2.2 per cent in June, driven by a 5.6 per cent slump in exports to non-EU countries, mainly because of declines in medicinal and pharmaceutical products and cars.

While GDP in the three months to the end of June was 22.2 per cent higher than in the same period of 2020, the figure at the end of June remained 2.2 per cent smaller than February 2020, which was before the pandemic swept across the country.

Stuart Cole, chief macroeconomist at stockbroker Equiti Capital, said the solid second-quarter data would go a long way to assuage fears that the economic recovery was starting to slow amid signs of a potential softening in consumer spending.

“The recovery in June is likely a reflection of the lifting of lockdown restrictions seen in May, although going forward it is hard to see the removal of the remaining restrictions seen since then having such an impact on the recovery,” he said.

“With economic activity already being hampered by staff shortages caused by the requirement of workers to self-isolate under the government’s contact tracing rules, it is quite likely that the pace of growth has already peaked and that a more modest recovery will be seen over the second half of the year.”

Britain's economy was hammered by the pandemic in 2020, suffering its biggest fall in output in more than 300 years, with a contraction of 9.8 per cent.

The country went on to make a swift recovery when restrictions were first eased in March, with the OECD raising its 2021 growth rate for the UK to 7.2 per cent, the fastest among large, developed economies.

However, Britain’s post-Covid recovery slowed sharply in July to its weakest level since March as supply-chain bottlenecks and rising staff absences caused by Covid-19 isolation rules hampered business activity.

Alpesh Paleja, CBI lead economist, said the return of growth in the second quarter as restrictions eased underscores that tackling the pandemic goes hand-in-hand with supporting economic growth, but challenges to the recovery remain.

“Several supply bottlenecks have likely taken the edge off growth over the summer: a shortage of raw materials and semiconductors, continuing global supply chain disruption and staffing shortages,” he said.

“In the near term, every effort must be made to safeguard the UK recovery.”

The British economy has been supported by the government's wage support scheme during the Covid-19 crisis, but from July employers have had to make contributions to staff wages with the scheme set to end by the end of September.

“With the Q2 growth reading slightly undershooting the Bank of England’s own growth forecast of 5 per cent, it further suggests there will be no change in the current monetary policy stance until a full assessment has been made on the impact of this removal," Mr Cole said.

However, Ruth Gregory, senior UK economist at Capital Economics, said the British economy was expected 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," she said.

London's FTSE 100 eased on Thursday despite the positive GDP data as weakness in heavyweight energy stocks outweighed optimism over a number of strong corporate profit reports.

The blue-chip FTSE 100 edged 0.23 per cent lower at 9am London time on Thursday, as weakness in the mining sector "overshadowed some decent UK economic data”, AJ Bell financial analyst Danni Hewson said.

“However, the index remains above the 7,200 mark and is in touching distance of yesterday’s post-pandemic highs."

Updated: August 12, 2021, 9:21 AM