Britain’s GDP growth stalls amid Covid surge

Britain’s gross domestic product (GDP) is estimated to have grown only by 0.1 per cent monthly in July, 2.1 per cent lower than its pre-pandemic level in February 2020, the Office for National Statistics (ONS) said.

The service output remained broadly flat in July following the strong growth of 1.5 per cent in June, whereas output in the production sector increased by 1.2 per cent and the construction sector decreased by 1.6 per cent, Xinhua news agency quoted the ONS as saying on Friday.

“As the summer slowly ends, there’s little doubt that the UK recovery has stalled since our last monthly economic update in July,” said James Smith, a developed markets economist at financial services firm ING.

Smith said the spread of the Delta variant and the high rates of self-isolation “only served to amplify the staff shortages being reported in various corners of the UK jobs market. PMIs have fallen off recent highs”.

Smith added the third wave of the pandemic in Britain has stalled the recovery, but hasn’t so far tempered consumer confidence dramatically.

“When it comes to consumer spending, the economy has arguably weathered the Covid-19 third wave slightly better than we’d feared.”

Paul Dales, an economist at the Capital Economics UK, an economic research consultancy based in London, said: “The rise in Covid-19 cases and the product/labour shortages are probably behind the stalling in the UK’s economic recovery in July.

“With next week’s CPI release set to reveal a jump in inflation from 2.0 per cent to around 3.1 per cent, there is a whiff of stagflation in the air.”

As to the economic prospect in the upcoming quarter, Smith said the fourth quarter will be a bigger test.

“The fourth quarter is more of an unknown. The positive news from recent weeks is that hospitalisations have stayed comparatively low, suggesting that vaccines will help avoid a lockdown this winter.

“In short, further gains in growth will be harder to achieve than during the bumper second quarter, when the economy grew by almost 5 per cent… We expect GDP to recover to pre-virus levels early next year.”