U.K. Recovery Runs Out of Steam With Lackluster August Growth

U.K. Recovery Runs Out of Steam With Lackluster August Growth

October 9, 2020

The U.K.’s recovery hit the buffers in August as the economy grew at less than half the anticipated pace.

Gross domestic product rose 2.1% from July, compared to economist forecasts for 4.6%, even as the government stepped up efforts revive the beleaguered hospitality industry. That left output in Britain still languishing almost 10% lower than before the lockdown. The pound trimmed gains after the report.

The figures will come as a concern to officials since August was when virus curbs on activity were at their lowest and government support for the hospitality industry peaked.

With the economy faces multiple threats, making up the remaining shortfall may prove to be a slog. Policy makers say they’ll increase monetary and fiscal stimulus as needed.

Swathes of the country are now back under restrictions as cases of coronavirus surge.

Meanwhile companies face tariffs, costs and border disruptions from Jan. 1 unless Britain and the European Union clinch a Brexit trade deal soon. Few think that Chancellor Rishi Sunak’s wage-subsidy replacement announced last month will avert mass job losses as government support is scaled back.

That could derail the economy’s recovery from its 20% contraction in the second quarter, the most among major advanced nations. While signs are the economy posted strong growth in the third quarter, GDP will still be around 3% below its pre-pandemic level at the start of 2022 if private-sector forecasters are correct.

In August alone, the figures make for disappointing reading. While a Treasury-subsidized meals program and a value-added tax cut brought some relief to restaurants, pubs, cafes and hotels, contributing over half the growth in August, the dominant services sector still grew slower than economists expected. Manufacturing and construction showed only a modest expansion.

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