UK economy grew by 6.6% in July, but 'tough autumn ahead' — as it happened

Graeme Wearden

from on 2020-09-11 13:44 (#580ES)

Britain's economy has now posted three months of growth, but fears over the future are mounting

Breaking: UK GDP jumped by 6.6% in July...
But economy is 7.6% smaller than in previous quarter
Only half the output lost has been recovered
Tough autumn looms
Sunak: Welcome news, but worries ahead
Experts: Recovery could be derailed

2.44pm BST

Time for a recap

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

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.

2.35pm BST

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.

2.20pm BST

Alfie Stirling of the New Economics Foundation sums the situation up -- the UK economy may be recovering, but this year's slump is quite unprecedented:

Summary of today's GDP Twitter debate:

"Glass half full" = exceeding OBR forecasts.

"Glass half empty" = never had it so bad. pic.twitter.com/bANcFwkdRa

1.57pm BST

In another example of the problems facing the UK economy, Pizza Hut is preparing to cut up to 450 jobs under a rescue deal.

My colleague Sarah Butler explains:

Pizza Hut has confirmed a list of 29 sites up for closure as part of a rescue deal that could lead to the loss of 450 jobs.

Sites in Cambridge, Leicester, Sheffield and Stratford, east London, are all at risk as the group considers cutting about 10% of its 244 outlets.

1.35pm BST

Over in America, inflation has risen by a little more than expected.

Consumer prices rose by 0.4% during August, more than the 0.3% forecast by economists, lifting annual CPI to 1.3%.

*U.S. AUG. CONSUMER PRICES RISE 0.4% M/M; CORE CPI RISES 0.4% pic.twitter.com/wsgbibSJUe

Core #CPI prints at +0.39%, raising y/y to 1.73%. pic.twitter.com/7G0GHzkYQl

1.30pm BST

The Treasury has announced that Rishi Sunak has told the Office for Budget Responsibility to prepare economic and fiscal forecasts for mid to late November.

That is clear sign of when the Autumn budget will be.

The Chancellor of the Exchequer has today asked the Office of Budget Responsibility to prepare an economic and fiscal forecast to be published in November.

12.57pm BST

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.

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."

OUT NOW: our latest #NIESRGDP Tracker suggests #GDP to grow by about 7% in the three months to August & expects to see growth of around 15% in 2020Q3 - But all the main sectors of the #economy remain below pre- #crisis levels - Here in full
https://t.co/CSl09oaGiT

12.51pm BST

This is a nice illustration of how the UK economy has recovered some, but not all, of the Covid-19 slump.

Monthly GDP in July started rebounding, but most sectors were still far below their starting levels in 2019. #GDP #dataisbeautiful #COVID19 pic.twitter.com/It7mY3GxBi

12.19pm BST

Here's Larry Elliott on the UK-Japan trade deal:

12.19pm BST

The UK economy has received a small boost this morning, with London and Tokyo signing off, in principle, on a free trade deal.

Liz Truss, the international trade secretary, called the deal historic', adding:

From our automotive workers in Wales to our shoemakers in the north of England, this deal will help build back better as we create new opportunities for people throughout the whole of the UK and help level up our country."

analysis by the UK government still expects the net benefit of its Japan trade deal to amount to...drum roll....

0.07% of GDP

here's the government's own forecast pic.twitter.com/JJEpxqDXkR

11.22am BST

More experts are warning that the UK economy faces a difficult autumn, having digested this morning's GDP report.

Anna Titareva, economist at UBS, predicts activity held up strongly in August, having grown 6.6% in July and 8.7% in June. But this month will be tougher, with the holiday season over and Eat Out to Help Out scheme wrapped up.

Our current baseline assumes GDP growing 16% q/q in Q3. However, the speed of recovery beyond that remains highly uncertain with significant downside risks to domestic demand. As we have laid out before, we see three key risks.

Firstly, a slow recovery in spending in sectors involving social interaction, even before the recent spike in infection rates. Secondly, a significant increase in unemployment as those who lost their jobs in recent months (but have not yet been classified as unemployed) start actively looking for work, and with the end of the Coronavirus Job Retention Scheme (CJRS) in October. And lastly, a slow recovery in business investment owing to a combination of weak demand and renewed Brexit uncertainty.

July's GDP figures show encouraging progress. A 6.6% increase, with particularly strong growth in sectors such as accommodation and food services, means no one can deny Super Saturday' had the desired impact.

Looking ahead to the August numbers, the Eat Out to Help Out scheme should give the restaurant sector another much needed boost, but we cannot ignore the fact that the increases we are seeing remain way below pre-pandemic levels. With talk of further lockdowns hot on the horizon, the danger is that this rebound is short-lived.

11.01am BST

The pound is continuing to weaken in the currency markets, as no-deal Brexit fears rise.

Sterling has now shed another 0.5% against the euro this morning, hitting 1.077 for the first time since late March.

The sterling price action has gotten downright brutal as market participants scramble to position for Hard Brexit risks on the latest exchange between the UK and the EU.

The latter issued a three-week ultimatum for the UK to back away from its drawing up of plans to override portions of the withdrawal agreement and threatened legal action. The UK shrugged off this push from the EU and neither side produced any language that was remotely hopeful.

10.17am BST

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.

10.14am BST

Britain's economy is growing, but it's not managing the V-shaped recovery some hoped for.

So tweets the CBI's Alpesh Paleja, who also warns that cash flow problems, weak demand, the end of the furlough scheme and Brexit will all weigh on growth.

UK GDP grew by 6.6% in July, but the main story is that it remains 12% below its pre-Covid level - far from the instant bounce back that some initially predicted (1/2) https://t.co/6k9yRVJR61

A number of headwinds lie in the path of a recovery in the months ahead:
Acute cash flow constraints among businesses
Challenging demand conditions
Withdrawal of govt support schemes (esp JRS)
Brexit (2/2)

9.45am BST

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.

UK economy's Covid catchup may take years despite signs of cheer https://t.co/7Su7Q56fdU

9.33am BST

Here's what we learned at 7am:

9.19am BST

There's not much reaction to the GDP report in the City, where the FTSE 100 index of blue-chip shares is up 17 points at 6020.

Luxury clothing and handbags maker Burberry are the top risers, up 2.5%, along with betting company Flutter (+1.7%) and Primark owner AB Foods (+1.8%) are the top risers.

9.17am BST

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

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."

9.01am BST

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.

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.".

8.26am BST

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.

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.

July GDP figures show continued 'bounceback' but still 11.7% down on February levels. As ONS note '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'. pic.twitter.com/Iu00G0Y6Dp

8.10am BST

More reaction:

Recovery state of play

July vs February output

GDP -11.7%
Services -12.6%
Manufacturing -8.7%
Construction: -11.6
Agriculture: -2.0%@ONS

Today's GDP figures. Evidence of a V-shaped recovery? Or evidence of the power of the furlough scheme? I fear the latter. Today's GDP data is up to July, the final full month of furlough. Where next? #GDP pic.twitter.com/qJITHdQgPc

We carried on camping. It is striking how different industries have recovered at very different paces. Campsites, cottages and caravan parks were as busy in July 2020 as they were in July 2019. Hotels struggled despite the staycation". pic.twitter.com/WejcUMMVE4

8.08am BST

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.

UK GDP out this morning. Growth continued into July at 6.6%, slightly slower than Growth seen in June, and overall remains -11.7% below the level in February. GDP now broadly back at the level last seen in 2013. Full release here: https://t.co/LzFp288jDS pic.twitter.com/96usI3nKug

7.48am BST

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

7.44am BST

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 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.

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."

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.

7.40am BST

Onto services...and accommodation and food suffered the worst slump over the summer, despite growing solidly in July.

Food and beverage service activities shrank by 60.1% in May-July, due to the closure of bars and restaurants.

7.35am BST

Britain's transport manufacturing sector suffered the worst contraction in the last quarter, while the pharmaceuticals industry grew strongly.

As this chart shows, most sub-sectors of industry are smaller than three months ago, with the wider sector 7% smaller.

7.28am BST

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."

7.23am BST

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.

7.16am BST

Here's the big picture:

7.14am BST

As you can see, the UK economy has now grown for three months in a row, since the government began to ease lockdown restrictions in May.

7.03am BST

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.

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.

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