UK growth slows despite eating out and staycations

Today’s UK GDP estimated figures for August, showing a rise of 2.1% for the month, come with a health warning that they are more uncertain than usual.

In an unusual statement, the ONS warned that its number-crunchers face practical challenges in compiling accurate figures because of difficulties in collecting the latest data because of Covid-19.

GDP figures are often revised even in the most normal of times because of new information and, usually, the revisions are usually upwards. Not at the moment: July’s figures have just been revised down.

So a cautious eye needs to be cast on the latest August numbers which shows the economy grew by 2.1%, well below the 4% monthly forecasts. And, despite the “Eat out to Help Out” scheme and a rise in spending on staycations, August’s figures were down on July’s 6.4% growth. Spending was also lower than in June – the first month most of the public were back out on the streets –  which saw a 9.1% rise, and May’s 2.7%.

The ONS reports that half of the growth in August was fuelled by the services sector – hotels and restaurants – helped by lockdown relaxations and more people holidaying in the UK. Overall growth in the accommodation industry jumped by 76% as holiday-makers decided not to risk travel quarantines while the hospitality industry jumped by 69.7%. These two industries alone made up 1.25 percentage points of the monthly growth.

Although the services sector grew by 2.4% in August, output was also down on July’s 5.9%. Over the last three months – perhaps a better guide to what is happening on the ground – all three main sectors are now showing decent growth. The services sector grew by 7.1%, production by 9.3% and construction by 18.5%. However, the services sector which has been hardest hit of all industries by the Covid lockdown measures is still 9.6% lower than the level in February 2020.

Of the fourteen services sub-sectors, twelve remain below their February level, with accommodation and food services output down by 13.7%.

Construction, and particularly private housing which bounced back by 34.9%, had a good month.  On a rolling three month basis, the construction sector grew by 18.5% in August after collapsing by 35.7% in June.

Since the March lockdown, GDP is now 21.7% higher than when the economy was put into the deep freeze in April, and GDP shrank by 19.5%.

Whether the August figures are accurate or not to the fraction of a percentage point is in the scheme of things immaterial: despite four months of growth, the economy overall is still 9.2% below pre-pandemic levels.

As we head into the winter with the threat of new restrictions taking us towards another mini-lockdown and the tailing off of the government’s job schemes, it’s hard to see how the economy is going to recover properly any time soon.