UK GDP roars in Q2 2021
An outstanding showing from the services sector and lifting of COVID-19 restrictions have helped fuel a surge in the UK’s gross domestic product last quarter.
A productive quarter for the UK economy
Data from the Office of National Statistics (ONS) reveals the UK economy grew 4.8% in Q2 2021.
That falls a shade below the Bank of England’s 5% prediction. The ONS, however, was quick to point out the UK’s growth rate was faster than those recorded in the US, France, and Germany. In fact, this was the fastest level of growth seen in all G7 nations.
For context, the UK economy showed a -1.6% contraction.
The economy is now 4.4% below pre-pandemic levels.
GBP/USD stayed relatively flat on the news, trading around the $1.380 level.
Services turbo-charge the British economy
Between April and May, pandemic restrictions were gradually lifted, helping stimulate a services sector boom.
Accommodation and food services recorded exceptional acceleration to the tune of 87.8%, as customers flocked to bars, clubs, and restaurants. The Home Nation’s respective runs in the Euro 2020 tournament, including England making it to the final, was a big catalyst as revellers took the opportunity to watch their teams in pubs or on big screens in communal spaces.
Travellers were also able to stay overnight outside their own homes for extended periods too. This helped increase revenues in the hotel and accommodation sector. Overseas travel rules are still not particularly clear, so we may see more home nation holidays as the summer progresses.
Food and beverage services grew 10% in the last quarter too.
Services represents 80% of the UK economy, so it’s encouraging to see the sector get a big boost in Q2. In total, the services industry grew 1.5% in June.
Where next for the UK economy?
The growth in services is extensive and a real motor of economic expansion, but the pandemic and its effects are still being keenly felt.
Supply chain issues, partly from Brexit and partly from the pandemic, will play a role in slowing growth going forward.
Take construction as an example. While building activity picked up in the second quarter, builders have noted they may face shortages of key materials like timber, steel, and masonry as the year progresses.
This is also true of UK manufacturing. We’ve seen in recent PMI readings that British factories’ output growth has slowed. High commodities prices and supply chain issues are weighing on the manufacturing sector.
A shortage of workers, exacerbated by the “pingdemic” of new COVID cases impacting on new hires and workers attending work, also played a role in creating future uncertainty.
However, 75% of all UK adults have now had two vaccine jabs. Cases are also falling. That’s good news all round.
Inflation is still the ever-expanding elephant in the room. Firms may transfer their higher input costs onto consumers, which may result in less spending if prices continue to rise. A general shift towards experiences, rather than consumer shopping, could also happen, which is something we’ve seen in the US recently.
Third quarter predictions are mixed. At the top end, The Bank of England is forecasting 3% growth. Other analysts, such as those at ING, are predicting 1.5% GDP growth in the third quarter.
Deloitte, on the other hand, has a much rosier outlook. It believes the British economy can reach its pre-pandemic levels by the end of the year.
“The pace of repair in the UK economy has been extraordinarily fast. It took five years for the economy to recover output lost in the financial crisis. The damage caused by the pandemic has been far worse and the recovery far quicker”, Deloitte Chief Economist Ian Stewart
“Massive government support has helped preserve capacity and speed up the rebound. This experience will strengthen the hands of those who believe that government – and public spending – should take a far more active role in countering conventional recessions.”