Slower growth in August could signal a hard winter


UK economic growth slowed in August despite an easing of lockdown restrictions and government subsidies for dining in restaurants, suggesting that Britain’s recovery was stalling even before a second wave of coronavirus arrived.



a group of people sitting at a bar: ABERDEEN, SCOTLAND - AUGUST 05: Kieth McKenzie wears a shielding face mask as he works in the pub The Grill in Union Street on August 5, 2020 in Aberdeen, Scotland. Scotland's First Minister Nicola Sturgeon acted swiftly and put Aberdeen back into lockdown after cases of Coronavirus in the city doubled in a day to 54. She ordered all indoor and outdoor hospitality venues to close by 5pm. (Photo by Jeff J Mitchell/Getty Images)


© Jeff J Mitchell/Getty Images
ABERDEEN, SCOTLAND – AUGUST 05: Kieth McKenzie wears a shielding face mask as he works in the pub The Grill in Union Street on August 5, 2020 in Aberdeen, Scotland. Scotland’s First Minister Nicola Sturgeon acted swiftly and put Aberdeen back into lockdown after cases of Coronavirus in the city doubled in a day to 54. She ordered all indoor and outdoor hospitality venues to close by 5pm. (Photo by Jeff J Mitchell/Getty Images)

The Office for National Statistics said in a statement Friday that the UK economy grew by 2.1% in August. The consensus expectation among economists was for a 4.6% increase, according to Capital Economics.

It was the fourth consecutive month of economic growth following a 20% contraction in April that led to the worst quarterly decline on record. But growth rates were stronger in May (2.7%), June (9.1%) and July (6.4%), signaling that the recovery is losing momentum. GDP remains 9.2% below the levels seen in February before the coronavirus hit, the ONS said.

Accommodation and food services were one of the few bright spots, expanding 71.4% in August as consumers made extensive use of the government’s “Eat Out to Help Out” program, which subsidized 100 million meals at restaurants, cafés and pubs, according to the Centre for Economics and Business Research.

But gains elsewhere were unimpressive. In construction, output rose by 3% leaving it almost 11% below its pre-crisis peak, while manufacturing grew just 0.7%.

The disappointing data comes as fresh restrictions introduced in September to curb a second wave of coronavirus infections risk undermining growth even more. Cases continue to climb, far outstripping infections recorded in April, raising the prospect that rules could be tightened further.

Despite a bumper August, hospitality businesses are already in need of additional government aid following a 10 p.m. curfew imposed late last month that threatens to put many out of business.

Finance minister Rishi Sunak on Friday unveiled a new package of measures for businesses legally required to shut as a result of coronavirus restrictions.

Firms will receive grants to pay two thirds of the wages of staff who cannot work, up to a maximum of £2,100 ($2,700) a month. The program will be available for six months from November with a review in January. Companies closed as a result of local lockdowns in England will also receive cash grants of up to £3,000 ($3,900) per month to help cover costs.

The new measures come just two weeks after the government announced an extension to its initial wage support program, albeit on less generous terms.

Fears are mounting that as government support for workers, businesses and homeowners unwinds from the end of October, job losses will increase and consumer spending will fall. UK companies already shed nearly 700,000 jobs between March and August, and the Bank of England warned in August that 2.5 million people could be out of work and looking for jobs by the end of the year.

“With the government’s fiscal support unwinding, the next few months will almost certainly be worse,” Ruth Gregory, senior UK economist at Capital Economics said in a research note.

Capital Economics expects GDP to increase 2% in September before flatlining in the last three months of the year. Stagnation in the fourth quarter could be followed by worse in early 2021, especially if talks on a new trade deal between Britain and the European Union fail.

“The big risk now is more restrictions and a no deal Brexit send the recovery into reverse,” Gregory added.

Without a post-Brexit deal, trading arrangements and supply chains could be thrown into chaos. Even if the two sides reach an agreement, UK businesses will face billions of dollars in added costs relating to border checks and customs rules.

“A long-lasting recovery is by no means assured,” Rain Newton-Smith, chief economist at the Confederation of British Industry, the main business lobby, said in a statement. “While necessary, the combination of restrictions re-introduced in September and rising infections will be weighing on already fragile business and consumer confidence,” she added.

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