Time for a recap

Britain’s economy has posted its third month of growth, but economists fear that the autumn will bring new pain.

GDP expanded by 6.6% in July, new figures from the Office for National Statistics show. It means the economy has recovered roughly half the output lost in the pandemic, but it still over 11% smaller than in February.

All sectors of the economy expanded; construction grew by 17.6% in July, services rose by 6.1%, manufacturing output jumped by 6.3% and agriculture expanded by 1.1%.

With growth probably continuing in August, it’s likely that the UK will exit its Covid-19 recession this quarter.

Chancellor Rishi Sunak struck a cautious tone, saying:

While today’s figures are welcome, I know that many people are rightly worried about the coming months or have already had their job or incomes affected.

Economists voiced more concerns, with many predicting bumps ahead - with the threat of a no-deal Brexit adding to fears that unemployment will rise sharply.

Heathrow Airport added to the jitters, by reporting that passenger numbers slumped by over 80% in August.

That’s probably all for today. Have a lovely weekend. GW

After some volatile trading sessions, the US stock markets has opened solidly higher.

Tech stocks are rebounding, lifting the Nasdaq index up by 1%, or 111 points, to 11,030. That keeps it out of correction territory.

The Dow Jones industrial average is also in the green, up 165 points or 0.6% at 27,699.

Stocks are mixed across Europe, with the FTSE 100 up 0.18% while the German DAX has lost 0.16%.

Economic think tank NIESR has just predicted that the UK economy kept growing in August -- and will officially emerge from recession at the end of this quarter.

Having analysed today’s GDP results, they predict GDP will grow by about 7 per cent in the three months to August.

That would lead to growth of around 15% in the third quarter of 2020, following contractions in Q1 and Q2.

Quarterly growth of 15% would normally get champagne corks popping, but not this year, as it wouldn’t recover all the 20% slump in April-June.

Dr Kemar Whyte, senior economist at NIESR, explains:

“There has been a welcome resumption of economic growth in the third quarter as the lockdown eased, signalling the end of a short, yet severe, recession in the first half of the year. The latest ONS estimates suggest that GDP grew by 6.6 per cent in July, a third consecutive monthly increase and is now 18.6 per cent higher than its April level.

However, despite this recovery, we have still only recovered just over half of the output lost due to the Covid-19 pandemic. The evolution of the pandemic and the scale of expected withdrawals of government support pose downside risks on the pace of the recovery as we move to the end of this terrible year.”

Britain’s recovery from the Covid-19 recession looks more like a ‘Nike swoosh’ than V, professor Costas Milas of the University of Liverpool tell us.

UK GDP grew by 6.6% in July 2020 but remains a massive 11.6% below its pre-pandemic level. In fact, the current recovery continues to look like a ‘Nike Swoosh’ one rather than a ‘V-shaped’ one predicted, among others, by Bank of England’s Chief Economist Andy Haldane (although he might have changed his mind now!).

GDP remained, in July 2020, a massive 11.6% below its pre-pandemic level (that is, the October to December 2019 average). UK GDP follows quite closely the path of Google mobility data which is a good proxy for the expenditure of consumers. The latest data, in September 2020, confirm that expenditure is lagging behind its pre-pandemic level quite substantially.

The long and painful road back to where we were before the pandemic is more likely than not to force Chancellor Rishi Sunak to extend or bring into force a new version of his Job Retention Scheme....

Our economics editor, Larry Elliott, has analysed today’s GDP report, and warns that the recovery is going to be long and bumpy.

He writes:

The economy was still 11.7% below its pre-coronavirus peak in July, which leaves more ground to make up than in any previous post second world war recession. That catchup period is likely to take years not months.

There are three big reasons for that. First, unemployment is going up and that will have an impact on consumer and business confidence. Second, the massive support to the economy provided by the chancellor is being wound down. Finally, there has been a recent rise in the number of new Covid-19 cases, which has led to the government reimposing restrictions and putting on hold plans to reopen bits of the economy that remain closed.

Add in some Brexit uncertainty and all the ingredients are there for a marked slowing in the pace of growth between now and Christmas. A double-dip recession cannot be ruled out.

Heathrow Airport has warned that the UK recovery is falling behind, after it suffered a large decline in passenger during the usually busy summer.

John Holland-Kaye, Heathrow chief executive, says that Britain’s 14-day quarantine rules are hurting, and should be replaced by a better testing system.

Speaking after Heathrow reported that passenger numbers fell by four-fifths in August (usually a hectic time), Holland-Kaye says:

Heathrow’s traffic figures for August demonstrate the extent to which quarantine is strangling the economy, cutting British businesses off from their international markets and blocking international students, tourists and investors from coming here to spend money.

The Government has announced it is looking at the options for reducing quarantine for passengers who test negative for Covid-19 - but Ministers urgently need to turn words into action. Every day of further Government delay costs British jobs and livelihoods.”

Heathrow’s latest travel stats show that:

• August passenger demand down 81.5% compared to previous year, with 1.4m people travelling via Heathrow.
• Long haul markets, which are critical for UK exporters and a main source of inbound tourism, students and investment remain closed by Government’s 14-day quarantine policy.
• North American passenger numbers are down by more than 95% compared to last year.
• Heathrow cargo down 34.2% (to 88 metric tonnes) compared with last year

ING developed markets economist James Smith is also concerned about the UK economy’s prospects for the next few months.

He predicts that growth will soon stall, and that the economy probably won’t return to pre-virus levels until late 2022, or perhaps later.

Smith writes:

“The fact that the UK economy has bounced for the second month in a row should come as little surprise. The 6.6% increase in GDP through July really just reflects the reopening of a wider number of sectors, including of course the food and accommodation sectors (see the chart below). This ‘mechanical rebound’ process should see a further increase in August, perhaps in the region of 3%, and a subsequent bounce in September to reflect the reopening of education venues (this part of the national accounts is as we understand it heavily dependent on the volume of people attending them).”

“All in, we think the third quarter will register around 17% growth. Of course, that would still leave the size of the UK economy about 8% lower than it was before the virus hit, and there are big questions surrounding where the economy will go from there. In all likelihood, we’re likely to see growth stall as we head into autumn. Unemployment looks set to rise over the coming months, albeit perhaps it’s still too early to see major signs of it in next week’s jobs report. However, we think it’s likely that the jobless rate will exceed the Bank of England’s 7.5% forecast, towards the end of the year or early next.”.

Although the UK economy has enjoyed a summer recovery, it now faces a tough autumn, warns James Smith, research director at the Resolution Foundation.

Smith says we should focus on the fact that the economy is still over 11% smaller than in February, despite three months of growth including July’s 6.6% expansion.

He explains:

“The UK economy continued to rebound over the Summer as lockdown restrictions eased. But it’s the level of activity that matters, which remains hugely down on pre-pandemic levels.

“More worryingly, the rise in covid-cases and return of public health restrictions means we are coming towards the end of the easy economic wins from restarting activity. With emergency support to firms and workers being withdrawn, far tougher times lie ahead this Autumn.

“Chancellor needs to reconsider his plans to swiftly phase out support given that the economic crisis will be with us for some time to come.”

This chimes with the concerns voiced by the IoD, the BCC, Fidelity and KPMG earlier, and indeed with chancellor Rishi Sunak’s comments.

Here’s a sobering fact. Britain’s economy is now back to its size in 2013, during the Cameron/Osborne austerity years and the eurozone debt crisis.

That’s because the economy is still over 11% smaller than in February, even though July’s GDP was 18.6% higher than its April 2020 low.

Here’s our news story on today’s GDP report:

Here’s some early reaction to this morning’s UK growth report.

Tej Parikh, Chief Economist at the Institute of Directors, fears the economy will soon hit ‘speed bumps’:

“The economy continued its rebound in July, but the hard part is still to come.

“With the lockdown lifting, production has picked up quickly. Businesses have also been adapting at pace, launching new products and shifting their operations online.

“The recovery will start to hit speed bumps into the end of the year. Local lockdowns and new restrictions heap uncertainty on businesses, and demand remains limited in many areas. Increased costs from adjusting to the pandemic will only add to companies’ cashflow headaches, and the longer this continues, the harder it will be to maintain.

BCC Head of Economics Suren Thiru argues the government must provide more support:

The UK economy is currently in a period of temporary calm, with activity buoyed by the government’s emergency support measures and the unwinding of pent-up customer demand as more parts of the economy reopened.

“However, with many firms continuing to face an unprecedented cash crisis and unemployment likely to surge as the support schemes wind down, there remains little prospect of a sustained resurgence unless substantial action is taken.

“To protect jobs and livelihoods, the government should consider extending and adapting the Coronavirus Business Interruption Loan Scheme to ensure businesses are supported sustainably over a longer period, as well as introducing a more significant package of support for firms placed under local restrictions.”

Tom Stevenson, Investment Director, Personal Investing, Fidelity International, says the outlook remains uncertain - with Brexit worries not helping

“Attention now turns to the sustainability of the upturn. August’s GDP print will show the impact of the popular ‘Eat Out to Help Out’ scheme. We already know consumer spending in August exceeded last year’s level for the first month since lockdown began, but with social distancing still in place some sectors are struggling to get back on their feet.

“We are far from out of the woods yet. Covid-19 cases are on the up again, the government is re-imposing restrictions on social gatherings and this, combined with the end of the furlough scheme next month, leaves the outlook uncertain. Deteriorating relations with the EU make a no-deal Brexit in January more likely, adding to the UK’s economic challenges and to downward pressure on the pound.”

Yael Selfin, Chief Economist at KPMG UK, is also concerned that new Covid-19 restrictions will undermine the recovery.

“July’s activity was buoyed by the steady re-opening of businesses after the initial national lockdown, partial resumption of travel and increasing demand for staycation holidays around the UK. Expect more of the same in August owing to the boost from the Eat Out to Help Out scheme.

“The hospitality sector saw a big boost in July, however activity remains well below pre-COVID levels.

“Overall GDP grew by 6.6% in July. However, the risk of a second wave of infections in the autumn could derail the nascent recovery and put the economy into a lower gear.”

Here’s Chancellor of the Exchequer, Rishi Sunak on the 6.6% jump in GDP in July.

“While today’s figures are welcome, I know that many people are rightly worried about the coming months or have already had their job or incomes affected. That’s why supporting jobs is our first priority and why we’ve outlined a comprehensive Plan for Jobs to ensure nobody is left without hope or opportunity.

We’re helping people return to work with a £1,000 retention bonus for jobs brought back from furlough. And we are creating new roles for young people with our Kickstart scheme, introducing incentives for training and apprenticeships, and supporting and protecting jobs in the tourism and hospitality sectors through our VAT cut and last month’s Eat Out to Help Out scheme.”

But as I mentioned a few minutes ago, Sunak is under pressure from MPs and from thinktanks to provide more targeted help for workers worst hit by the pandemic.

Good news: every sectors of the UK economy grew in July.

Less good news: they’re all still smaller than before the pandemic, and growth did slow compared with June.

This morning’s GDP report shows that construction grew by 17.6% in July, services expanded by 6.1%, manufacturing output rose by 6.3% and agriculture expanded by 1.1%.

But as this chart shows, they’re all smaller than in February, before the lockdown.

Here’s the big picture:

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business....

...and we kick off with some breaking news: Britain’s economy continued to recover in July as the Covid-19 lockdown eased.

The Office for National Statistic’s latest GDP figures, just released, show that the UK economy expanded by 6.6% during July.

That follows growth of 8.7% in June and 2.4% in May, after the record-breaking 20% contraction in April. And it means the economy has recovered more than half the output lost during the pandemic.

But despite the recovery, output is still sharply lower than before the virus outbreak began.

In the May-July, the ONS says, the economy shrank by 7.6% compared with the previous quarter, as the country struggled through its deepest recession in decades. That shows the challenge facing the economy, just as Covid-19 cases rise again.

The ONS director of economic statistics Darren Morgan said:

“While it has continued steadily on the path towards recovery, the UK economy still has to make up nearly half of the GDP lost since the start of the pandemic.

“Education grew strongly as some children returned to school, while pubs, campsites and hairdressers all saw notable improvements. Car sales exceeded pre-crisis levels for the first time with showrooms having a particularly busy time.

“All areas of manufacturing, particularly distillers and car makers, saw improvements, while housebuilding also continued to recover. However, both production and construction remain well below previous levels.”

Details and reaction to follow!

The GDP report comes as MPs urge chancellor Rishi Sunak to rethink his plan to end the UK job retention scheme next months.

They fear that otherwise healthy firms will crash without the furlough scheme, hampering the recovery and pushing up unemployment.

The agenda

• 7am BST: UK GDP report for July
• 7am BST: UK trade balance for July
• Noon BST: NIESR’s monthly UK GDP tracker for August
• 1.30pm BST: US inflation report for August