The UK economy grew less than expected in August as consumers reined in spending, raising doubts about whether output would return to pre-pandemic levels this year.
GDP rose 0.4 percent month-on-month in August, the Office for National Statistics (ONS) said yesterday.
A series of revisions showed an unexpected drop in July, leaving the economy 0.8 percent smaller than it was when COVID-19 struck in February last year.
The figures add to evidence that the UK’s recovery is being squeezed by supply shortages and a jump in the cost of goods. That might give the Bank of England reason to delay an increase in interest rates that financial markets anticipate coming this year.
“The prospect of rising costs, further disruptions and a potential winter wave of COVID cases could threaten a fragile economic recovery,” KPMG UK chief economist Yael Selfin said.
Growth of more than 2 percent would be needed last month if the third quarter is to expand by 2.1 percent, as the Bank of England has predicted. That is unlikely, meaning the economy might remain short of pre-pandemic levels on a quarterly basis until next year.
Households are also facing a cost-of-living squeeze that threatens to weigh on spending, with energy bills and taxes set to increase sharply in the spring next year.
The ONS said services grew 0.3 percent month-on-month in August, half the pace expected because of drops in retail sales and healthcare output. Construction shrank during the month, but both manufacturing and industrial production were stronger than expected.
The report came a day after data showing the labor market remained in robust health last month, reflecting a boom in hiring after the end of lockdowns. Policymakers are hoping that means employers would absorb many of the 1 million people who were still receiving furlough benefits when the program ended on Sept. 30.
Total imports of goods, excluding precious metals, fell 3.1 percent in August, while total exports also dropped 4.6 percent, with the gap between imports to EU states and non-EU nations closing to its narrowest since the end of the Brexit transition period.
The ONS said that it was unclear whether this reflected short-term pandemic disruption or longer-term supply chain recalibration.
“With the ongoing pandemic and recession, it is difficult to assess the extent to which this reflects short-term trade disruption or longer-term supply chain adjustments,” said Ana Boata, head of economic research at trade credit insurer Euler Hermes.
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