The British economy posted modest growth in August, the first full month without COVID-19 restrictions and before the effects of September’s fuel-crisis were laid bare.
The pace of recovery from the pandemic has slowed in recent months, and statisticians now believe that activity eased slightly in July. Production has still not recovered to reach its pre-pandemic peak and will fall short of the growth predictions set by the Bank of England (BOE).
Activity rose 0.4 per cent in August, lower than some economists’ expectations and as data is revised to show that July’s ‘pingdemic’ pushed the economy into a slight contraction of 0.1 per cent compared to June.
Meanwhile, according to Paul Dales, UK chief economist at Capital Economics, “the recent increase in shortages and the fuel crisis could mean that growth has almost stalled since August.”
The latest figures come as the global lender of last resort, the International Monetary Fund, in its latest health check of the global economy on Tuesday underscored the risk of inflation shocks in the UK and US.
The rapid rise in prices, coupled with weak growth prospects in the coming months, will pose a puzzle for policymakers on Threadneedle Street whether to cut their support for the economy through ultra-low interest rates and bond purchases.
Rather than moderate price increases driven by supply shocks such as the recent climb in natural gas prices, interest rate increases are often used as a tool to pacify inflation resulting from economic growth. Rate setters in the BoE are under increasing pressure on how they will control inflation. Investors are betting that rates may go up as soon as this year.
“In August the economy benefited from the first full month without COVID-19 restrictions in England with bars, restaurants and festivals benefiting,” said Darren Morgan, director of economic statistics at the Office for National Statistics (ONS).
“However, the latter and slightly weaker data from several industries means we now estimate the economy to fall slightly in July.”
According to the ONS, relatively slower growth in July and August than some estimates means the economy is still down 0.8 percent from its level before the pandemic hit in February 2020.
The scarcity of material, which has been global in nature, shows signs of acting as a constraint on development. These global issues are exacerbated by the acute labor shortage in the UK as a result of fewer EU migrants in areas such as HGV drivers.
In manufacturing, the 0.2 per cent drop in production marked the third such decline in four months. Recent survey data suggests that ongoing problems with sourcing materials will constrain growth well into winter.
Economists have warned that the domestic crisis combined with global issues will take another toll. “Such drugs may become more widespread and important in September and October, with the fuel crisis preventing some people from going to work,” Mr Dales said.
The Bank of England predicted that the UK economy would grow at 2.1 per cent in the three months to September, compared to the previous quarter.
However, that prospect was now “impossible”, said Samuel Tombs, UK chief economist at Pantheon Macroeconomics. This would require a rapid growth of 2.2 percent from August to September, which no fast, indicative survey data supports. This means the Bank of England is forecast to cut 1.5 per cent for the third quarter on 4 November, Mr Tombs said.
Credit: www.independent.co.uk /