UK economy picks up in August, underpinning BoE rate hike bets

  • UK GDP +0.4% m/m in August after 0.1% fall in July
  • England principally freed from COVID-19 restriction in August
  • Markets see BoE elevating charges by the top of December
  • ONS says chip shortages eased, lack of constructing supplies worse
  • Economy to face headwinds from fuel value surge, labour shortages

LONDON, Oct 13 (Reuters) – Britain’s economy returned to development in August after contracting for the primary time in six months in July, conserving intact monetary market bets that the Bank of England will start elevating rates of interest earlier than the top of the 12 months.

Gross home product grew by 0.4% in August – a shade beneath market expectations in a Reuters ballot of economists – after it was revised down to indicate a drop of 0.1% in July when employees absences linked to the Delta variant of COVID-19 peaked.

“The economy picked up in August as bars, restaurants and festivals benefited from the first full month without COVID-19 restrictions in England,” Darren Morgan, director of financial statistics on the Office for National Statistics, stated.

Financial markets had been little modified after the information, which confirmed a blended image on the influence of provide chain difficulties which have pushed up inflation and harm development.

The BoE, dealing with a leap in inflation, appears set to be the primary main central financial institution to lift rates of interest for the reason that begin of the pandemic. Investors are betting on an increase to 0.25% by the top of December, up from its all-time low of 0.1%.

After the most recent official information, Britain’s economy is now inside 0.8% of its pre-pandemic dimension – a a lot smaller hole than when the final month-to-month figures had been launched because of upward revisions to output development earlier in the 12 months.

Still, the economy stays round 5% smaller than if development had continued on its 2010-2019 trajectory uninterrupted by the pandemic – in contrast to the United States which had nearly closed that hole as of the second quarter of 2021.

UK GDP stays nearly 5% beneath pre-COVID development

Britain’s economy shrank by 9.7% in 2020, its joint-biggest drop in 300 years and matching the annual decline in 1921, when the economy was nonetheless reeling from the price of World War One.

The International Monetary Fund forecast on Tuesday that Britain was on monitor to have the quickest growth of any nation in the G7 group of wealthy nations, rising by 6.8% this 12 months, though the outsize scale of final 12 months’s stoop means it can nonetheless take longer to recuperate than most of its friends.


Britain’s economy expanded quickly in the primary half of 2021 helped by the quick preliminary roll-out of COVID-19 vaccines.

But this has slowed as a result of a wave of coronavirus instances and world provide chain chaos which in Britain has been exacerbated by new post-Brexit restrictions on commerce and immigration.

Growth in the three months to August slowed to its weakest since April at 2.9%.

Chip shortages which had hampered carmakers eased in August, the ONS stated, serving to manufacturing return to development, however automotive output was nonetheless greater than 14% beneath a peak in February.

Supply-chain shortages had been most seen in building, the place output fell for a second month in a row as a result of rising prices and shortages of metal, concrete, timber and glass.

The economy can be more likely to have taken an extra hit in September from short-term shortages of gas at many petrol stations in England – attributable to an absence of tanker drivers – and the influence of a surge in pure fuel costs.

Samuel Tombs, economist at Pantheon Macroeconomics, stated expectations that the BoE would act imminently seemed misplaced.

“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 stated.

GDP would wish to develop by an implausible 2.2% in September for it to match the BoE’s forecast in August for development of two.1% in the third quarter as an entire, he added.

Separate information from the ONS prompt the influence of Brexit on commerce between Britain and the European Union was easing.

Imports of products from EU nations remained decrease than these from non-EU nations for an eighth month in a row however the hole was the narrowest since Britain left the bloc’s single market on Jan. 1.

The information confirmed an identical image for British items exports to the EU, the ONS stated.

Reporting by David Milliken
Editing by William Schomberg and Toby Chopra

Our Standards: The Thomson Reuters Trust Principles.

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