Britain’s V-shaped recovery faltered in August, as the economy grew much slower than expected, leading the UK's finance minister to acknowledge people were "worried" ahead of the winter months.
Gross domestic product rose 2.1 per cent from July, far lower than economist forecasts of 4.6 per cent, according to data from the Office for National Statistics, putting hopes of a V-shaped recovery – when a recession and subsequent recovery resemble a V shape on a chart – at risk. The fourth consecutive monthly increase placed economic output more than a fifth higher than April when it suffered a record fall of 19.5 per cent.
“Today's figures show our economy has grown for four consecutive months, but I know that many people are worried about the coming winter months,” said Mr Sunak.
“Throughout this crisis, my single focus has been jobs – protecting as many jobs as possible, and providing support for people to find other opportunities where this isn’t possible. This goal remains unchanged.”
The latest GDP figures are concerning for officials as coronavirus restrictions were at their lowest in August and government support for the hospitality industry were at their highest through initiatives such as the Eat Out to Help Out scheme.
More than half of the economy's growth in August came from accommodation and food, where output surged by 71.4 per cent thanks to the government's month-long dining discount scheme, more people taking holidays in Britain and the easing of movement restrictions. Manufacturing and construction showed only a modest expansion.
With the number of cases ramping up once more and swathes of the country back under restrictions, the finance minister will unveil further support for jobs and businesses affected by coronavirus shutdowns on Friday when he details “the next stage” of the Jobs Support Scheme.
"The sharp slowdown in growth indicates that the recovery may be running out of steam, with output still well below pre-crisis levels," said 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."
The disappointing August data followed growth of 6.4 per cent in July, 9.1 per cent in June and 2.7 per cent in May.
“With recent surveys pointing to activity softening in September, and the potential for further and more stringent localised restrictions on activity, doubt is growing as to whether the recovery can be sustained into the final quarter of the year,” said Dean Turner, economist at UBS Global Wealth Management. “Sluggish progress is likely to encourage the Bank of England to increase its bond-buying programme at its November meeting.”
Bank of England 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.
Britain’s poor August growth rate is another sign the nation risks lagging behind its biggest European peers, as the country heads closer towards the end of the Brexit transition period. UK output is now almost 10 per cent lower than before the lockdown, compared with around 5 per cent in France. The UK had the biggest contraction among major European economies in the second quarter, as well as one of the world’s highest death rates from the virus.
“With new restrictions being imposed to curb the resurgence in Covid-19 cases, we think that a 2 per cent month-on-month rise in GDP in September will be followed by no increase at all in the last three months of the year,” said Ruth Gregory, senior UK economist at Capital Economics.
“The big risk now is more restrictions and a no-deal Brexit sending the recovery into reverse.”