UK GDP increased by 4.8% in Q2 2021 following the easing of COVID-19 restrictions
According to a report released by the Office for National Statistics (ONS), UK gross domestic product (GDP) is estimated to have increased by 4.8% in Q2 (Apr to June) 2021 following the easing of coronavirus restrictions.
This means that the level of GDP is now 4.4% below where it was pre-coronavirus pandemic at Q4 (Oct to Dec) 2019.
However, the pattern of growth was erratic, with a 2.2% burst of growth in April slowing sharply to just 0.6% in May before accelerating once more to +1.0% in June. Fears that the arrival of the Delta variant and the ‘Pingdemic’ that followed might impact growth have so far not really materialised. Overall, the figures were in line or slightly ahead of most forecasters’ expectations, but not quite matching the Bank of England’s 5.0% forecast made last week.
The pattern of growth was driven by the reopening of the economy after lockdown. Consumer expenditure jumped by 7.3%, more than offsetting the weakness of the previous two quarters. Businesses have yet to restart investing, with capital spending slipping back half a percent. Wage growth remains sluggish, despite many reports of hard to fill vacancies, with the ONS reporting employee compensation just 1.7% ahead.
Several countries have published first estimates of their GDP for the second quarter of 2021, including France, Germany, Spain and the United States.
The UK experienced the largest increase in real GDP of these countries in Q2, in part reflecting the timing of the tightening and easing of public health restrictions in the first half of this year.
Of the other countries, Italy and Spain had the next largest volume increases in Quarter 2 2021. However, these two countries are the furthest away from their pre-pandemic levels of GDP, with Spain 6.8% and Italy 3.8% below their Quarter 4 (Oct to Dec) 2019 levels. The United States is the only economy to have recovered to above pre-pandemic levels (0.8%).
Chancellor Rishi Sunak commented: “Today’s figures show that our economy is on the mend, showing strong signs of recovery. I know there are still challenges to overcome, but I feel confident in the strength of the UK economy and the resilience of the British people.”
Looking at the data, Steve Clayton, fund manager at HL Select said: “These figures knock fears over the impact of the Delta variant on the head. Consumers are continuing to spend, regardless. The economy is still some 4.4% smaller than it was at the end of 2019, but is clawing that back with each month. With the big surge of the initial reopening behind us, we expect the pace of growth to moderate over the remainder of the year. But if businesses pick up the baton and start investing to support growth once more, then we could see upside to our already positive view of the prospects for the UK economy this year.”
Commenting on quarter on quarter GDP rising 4.8%, Ian Warwick, Managing Partner at Deepbridge Capital, said: “Although expected with the economy reopening, today’s GDP data is the latest sign of positive growth for the economy. As we continue to focus on economic recovery, it remains critically important that scale-up businesses, particularly in high-growth sectors such as digital technologies and life sciences are supported; as they will be at the very heart of economic growth as we create an economy fit for the twenty-first century. Government initiatives such as the Enterprise Investment Scheme (EIS) have never been more important for helping entrepreneurs and innovators source the funding they require, whilst also offering private investors with tax incentives to develop UK-supporting private equity portfolios. With our EIS funds reaching record levels of funding in 2020/21 it is evident that there is considerable demand from investors and financial advisers alike to invest in early-stage UK companies which we believe will be at the forefront of our economic recovery.”
Graeme Cushion, Partner at hospitality sector experts and licensing solicitors Poppleston Allen said: “Customers returning to hospitality venues as restrictions lifted was key to driving Britain’s recovery, underlining the vitally important contribution the sector makes to the UK economy.
“Whilst Covid-19 has permanently altered the way we work and shop, it’s clear one pre-pandemic way of life the public were happy to return to quickly was socialising in pubs and restaurants, making up for lost time in terms of spending disposable income saved during lockdown.
“The figures also suggest that a vibrant hospitality and leisure sector will be one of the main drivers in ensuring footfall returns to town and city centres with retail and even work spaces set to benefit. Whilst retail has been the historical driver of footfall for the hospitality sector, our new post-covid era might see this reversed, with hospitality becoming the saviour of town and city centre retail.”