British economic rebound sharper than first estimate

GDP rose 5.5 per cent between April and June when the country's Covid restrictions eased

Shoppers on Oxford Street in London. The UK's gross domestic product was boosted in the second quarter by a surge in household spending as Covid restrictions eased. Getty Images

Britain’s economy rebounded faster than expected in the second quarter of this year as it emerged from lockdown, but the recovery has already hit roadblocks as post-Covid bottlenecks stunt growth.

Gross domestic product rose 5.5 per cent between April and June after being revised up from the initial estimate of 4.8 per cent, leaving GDP just 3.3 per cent below its pre-pandemic level, according to the Office for National Statistics.

But, while pent-up demand after the 2021 lockdown led to increased spending, more recent GDP figures show a marked slowdown in the recovery with many sectors held back by the supply chain crisis and shortage of lorry drivers.

“The economy grew more in the second quarter than previously estimated, with the latest data showing health services and the arts performing better than initially thought,” said deputy national statistician for economic statistics at the ONS, Jonathan Athow.

“The revised figures also show households have been saving less in recent years than previously thought. Household saving fell particularly strongly in the latest quarter from the record highs seen during the pandemic, as many people were again able to spend on shopping, eating out and driving their cars.”

Britain's economy was hit hard by the Covid-19 pandemic, plunging 9.8 per cent at the start of the crisis in March last year.

The biggest driver of the upwards GDP revision for the second quarter of 2021 was household spending, which jumped 7.9 per cent as restrictions eased to allow outdoor dining in April and further curbs lifted in May.

In the services sector, especially in the accommodation and food industry, output rose by 87.6 per cent in quarterly terms as it reopened from lockdown.

Manufacturing output rose 1.8 per cent in the second quarter, despite a shortage of microchips hurting car production, while food and beverage manufacturing performed strongly and construction output had broadly returned to its pre-pandemic level.

Meanwhile, the savings ratio fell to 11.7 per cent from 18.4 per cent in the first three months of 2021, which was the second highest on record.

But the economic outlook is darkening, with figures this month showing economic growth easing to 0.1 per cent in July, down from 1.4 per cent in June, with consumers and businesses now facing the double hit of accelerating inflation and supply chain problems.

Bank of England Governor Andrew Bailey said on Wednesday said that output is unlikely to recover its pre-pandemic level until early next year, later than officials had predicted in August.

The current account deficit — the gap between money coming into the UK and the flows leaving — narrowed unexpectedly to £8.6 billion ($11.55 billion), about half the rate expected and 1.5 per cent of GDP.

Meanwhile, trade in goods and services swung to a small surplus, offsetting a wider deficit on investment income.

Separately, British car production fell by 27 per cent in August, as the sector was hit by the global shortage of semiconductors, according to the Society of Motor Manufacturers and Traders (SMMT).

Just over 37,000 cars were manufactured last month, down from 51,000 a year earlier, with the shortage of semiconductors causing production stoppages across the sector.

But production of battery electric and hybrid cars surged to a new high in August, representing more than a quarter of all cars made.

Mike Hawes, SMMT chief executive, described the “significant decline” in UK car production as “extremely worrying”.

“While not the only factor at play, the impact of the semiconductor shortage on manufacturing cannot be overstated. Carmakers and their suppliers are battling to keep production lines rolling with constraints expected to continue well into 2022 and possibly beyond,” Mr Hawes said.

He said that job support schemes, such as furlough, which end on Thursday, had been a lifeline for the sector with its cessation coming “at the worst time” as the industry grapples with Covid-related stoppages

“Other countries have extended their support; we need the UK to do likewise,” Mr Hawes said.