U.K. Economy Sees Faster Growth in June as Lockdown Eases
U.K. Economic Growth Unexpectedly Accelerates in June
(Bloomberg) -- The U.K. economy grew more than expected in June as lighter coronavirus restrictions led to renewed strength in nation’s dominant services.
Gross domestic product rose 1%, more than the 0.8% predicted by economists, the Office for National Statistics said Thursday. That made growth for the second quarter at 4.8%, close to the 5% pace the Bank of England predicted last week.
A sharp recovery from the worst recession in three centuries has left the economy only 2.2% smaller than before coronavirus lockdowns. The breakneck pace of expansion is likely to moderate as post-lockdown euphoria fades and infections rise. The Bank of England expects the lost output to return by the end of this year.
“Today’s figures show that our economy is on the mend, showing strong signs of recovery,” said Chancellor of the Exchequer Rishi Sunak. “I know there are still challenges to overcome, but I feel confident in the strength of the U.K. economy.”
Statisticians said health services and a resurgence in hospitality were the main drivers of growth in June. Education surged during the quarter after schools reopened.
Total exports of goods, excluding precious metals, fell 2.2% in June, driven by a 5.6% slump in exports to non-EU countries, mainly because of declines in medicinal and pharmaceutical products and cars.
“More frequent visits to GPs meant that the health and social work sector was the largest contributor to June growth, while construction continued to slow after a strong start to the year,” said Hande Kucuk, deputy director of the National Institute of Economic & Social Research. “We expect growth to slow in the third quarter but still remain high by historical standards.”
What Bloomberg Economics Says ...
“The economy took a big leg up in 2Q with the output data for June suggesting the recovery regained momentum. Still, even with the majority of restrictions now lifted the country faces headwinds as infection rates increase. As a result, we expect growth to underperform the Bank of England’s latest forecasts.”
Dan Hanson, Bloomberg Economics. Click for the REACT.
Supply bottlenecks were visible in construction data, with monthly output falling by 1.3%. The ONS cited anecdotal evidence of shortages in materials such as tiles, steel and cement. This led to “larger than normal price rises,” it said.
Manufacturing and industrial production fell in the second quarter, led by a drop in mining and quarrying. Oil and natural gas output dropped to its lowest since at least 1997 due to planned shutdowns for maintenance.
While the spread of the delta variant of the virus has cast doubt on when workers can return to offices, shops and restaurants were open throughout June and enjoyed another lift at the end of July when most remaining lockdown rules were dropped.
Prime Minister Boris Johnson’s move to drop those restrictions left businesses scrambling for staff, boosting wages along with the costs of goods and services.
That has the BOE concerned about rising inflation. Officials last week confirmed they’re likely to tighten monetary policy in with the next three years, unwinding a decade-old stimulus program that helped the economy weather the financial crisis, Brexit and Covid-19. They estimated inflation may peak at 4% this year, double the targets.
“Good news for now, but recovery remains fragile” said Yael Selfin, chief economist at KPMG U.K. “While we expect the pressure on supply chains and labor market to ease in coming weeks and into next year, there is a growing risk that a slowing pace of output growth could coincide with even higher levels of consumer demand in the short term, leading to an unwelcome burst of inflation.”
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