Economy grew as Covid restrictions ended but supply chain woes cast bleak forecast

Shoppers and those heading out for dinner helped boost the economy. Credit: PA

The UK's economy grew in August but GDP still remains below pre-pandemic levels, according to the latest official data.

Gross domestic product (GDP) rose 0.4% between July and August, found the The Office for National Statistics (ONS), following the easing of Covid-19 restrictions, boosted by the full reopening of hospitality and large-scale events like festivals.

However, GDP still remains 0.8% lower than its pre-pandemic level in February 2020.

The data showed further signs of a slowdown in the UK’s recovery from the pandemic as global supply chain woes take their toll, with the August figure lower than expected.

Credit: ONS

Meanwhile, the ONS also downwardly revised its estimate for July to a contraction of 0.1% from 0.1% expansion previously.

It was the first contraction since January this year, when the winter lockdown weighed on the economy.

Darren Morgan, director of economic statistics at the ONS, said: “The economy picked up in August as bars, restaurants and festivals benefited from the first full month without Covid-19 restrictions in England.

“This was offset by falls in health activity, with fewer people visiting GPs and less testing and tracing.

“However, later and slightly weaker data from a number of industries now mean we estimate the economy fell a little overall in July.”

It comes after the ONS said a record number of Britons are currently in work as company payrolls surged by more than 120,000 above pre-pandemic levels, according to official data.The latest data shows growth rebounded strongly in the second quarter, the ONS found, with GDP rising by 5.5% - but the recovery has been more modest than expected, with supply chain problems and the lorry driver crisis holding back the economy.

The ONS data showed that output in the construction sector fell for the second month running, down by 0.2% in August following a 1% decline in July as supply issues have led to shortages of key materials and rocketing prices.

Having recovered in April to be 0.9% above levels seen before the pandemic, the construction sector is now 1.5% below its pre-Covid level.

The economy would also need to soar by 2.1% in September to remain on track with the Bank of England’s forecast for overall growth of 2.1% in the third quarter.

Samuel Tombs at Pantheon Macroeconomics said it was “implausible” that growth would rise enough in September to remain on track, particularly given the full force of the supply crisis is set to be felt in the coming months.

He is estimating the Bank will cut its prediction for third-quarter growth to 1.5% in its next set of forecasts in November, which will likely stay its hand over raising interest rates, despite surging inflation.

“The continuation of modest GDP growth in August should convince the MPC that the economy does not need to be cooled immediately by raising interest rates,” he said.