UK economy continues to recover in July

The UK economy grew 6.6% in July, according to official figures, but is still well below pre-pandemic levels.

It is the third month in a row that the economy has expanded.

But the Office for National Statistics (ONS) said the UK “has still only recovered just over half of the lost production caused by the coronavirus.”

Hair salons, pubs and restaurants contributed to the growth after businesses were allowed to reopen in July.

Has the UK economy returned to pre-coronavirus levels?

Definitely not. The UK economy, measured by the value and volume of goods and services it produces, is still 11.7% smaller than in February, before the lockdown was imposed.

Growth in July was also slower than the 8.7% expansion seen in June.

However, there are encouraging signs. Thomas Pugh, a British economist at Capital Economics, said the reopening of restaurants and pubs meant that the accommodation and food service sector “jumped a whopping 140.8%” between June and July.

This had a domino effect on the alcohol industry, which grew 32.7%.

Keeping young people busy while at home also continued to drive demand for toys and games, the ONS said, while UK holidays supported campgrounds, cottages and caravan parks “due to a large increase in stays” .

However, activity in the accommodation and food services sector remained 60.1% below the level registered in February.

And while Pugh expects the Eat Out to Help Out program to provide further impetus in August, “now that most sectors of the economy are open again, there is little room for further significant increases in monthly GDP.”

Meanwhile, the auto sector saw demand return to pre-pandemic levels.

“Auto sales exceeded pre-crisis levels for the first time and showrooms had a particularly busy time,” said Darren Morgan, director of economic statistics at ONS.

Up, up, but not far. The UK economy continued with a strong recovery since the July lockdown, with extraordinary growth of 6.6% in the month. But the rate of recovery was slightly slower than in June, raising some concerns about the current strength of the recovery.

The economy is still almost 12% smaller than before the pandemic crisis and just over half of the production lost during the shutdowns has recovered.

While the third quarter is on track to see record numbers of growth and the official end of the recession, fears persist that the recovery will die down.

Business groups continue to push for expanded government support packages that need to be closed. Figures for July reflected the partial reopening of retail, manufacturing and some public sector activities such as schools.

How long will recovery take?

Forecasts vary, but the consensus is that it will not be quick.

The UK entered a recession after activity slowed during the first and second quarters of this year after the government announced a lockdown to stem the spread of the coronavirus.

And in the three months through July, the economy contracted 7.6%.

Mr Pugh questioned how strong the UK recovery would be for the rest of the year.

“Talk of tax increases in the next Budget, a further deterioration in Brexit negotiations and a worrying increase in the number of virus cases and tighter social distancing restrictions will conspire to further slow the recovery,” he said.

Dean Turner, an economist at UBS Global Wealth Management, predicts that it will be until the end of 2021 before the UK recovers to pre-pandemic levels.

“Even with a managed exit from the Brexit transition agreement, lost production is unlikely to recover before the end of next year,” he said.

“The latest turn in the negotiations raises the possibility that any recovery will take longer.”

What risks do we have ahead?

The number of coronavirus cases in the UK has started to rise again and social gatherings of more than six people will be illegal in England from Monday.

“The recovery will likely stall if, as seems likely, new Covid-19 infections continue to rise, causing people to work from home and avoid consuming services that require close human contact,” said Samuel Tombs chief economist. in the UK, Pantheon Macroeconomics.

“Consequently, we continue to expect GDP to be about 5% below its peak at the end of this year.”

Meanwhile, the Coronavirus Job Retention Plan will end on October 31.

Chancellor Rishi Sunak has been emphatic that it will not continue. However, the Resolution Foundation think tank said it “must reconsider its plans to quickly remove support as the economic crisis will be with us for some time.”

Former Prime Minister and Chancellor Gordon Brown warned that ending the licensing plan was a “cliff” that could unleash “a tsunami of unemployment.”

“The government has to change course here,” he told the BBC’s Today program.