UK’s economy grows again but still below pre-pandemic level

The British economy grew by 4.8% in the second quarter of 2021 as lockdown restrictions were lifted but remains 4.4% below the level it was just before the start of coronavirus pandemic, official figures showed on Thursday.

The Office for National Statistics also said the British economy grew by 1% in June alone, the fifth straight month of growth. June was the first full month that many sectors of the economy such as pubs and restaurants were fully open inside and out, following the lifting of restrictions.

“The UK economy has continued to rebound strongly, with hospitality benefiting from the first full month of indoor dining, while spending on advertising was boosted by the reopening of many services,” Jonathan Athow, deputy national statistician for economic statistics, said.

The lifting of pandemic restrictions following the rapid rollout of vaccines in the UK has buoyed growth in recent months. All legal limits on contact, such as social distancing rules and caps on the number of people allowed to gather together, were lifted in July in England. The other nations of the U.K. have been lifting restrictions at a slightly slower pace.

Economists expect further growth in the months to come even though confirmed virus cases have risen as a result of greater social contact. The Bank of England said last week that “a waning impact” from COVID-19 would boost demand growth and help the British economy reach its pre-pandemic level by the end of the year.

Ian Stewart, chief economist at Deloitte, said the “pace of repair” has been “extraordinarily fast,” and noted that it took five years for the British economy to recover the output lost in the financial crisis in 2008-9.

“The damage caused by the pandemic has been far worse and the recovery far quicker,” he said. “Massive government support has helped preserve capacity and speed up the rebound. This experience will strengthen the hands of those who believe that government - and public spending - should take a far more active role in countering conventional recessions.”

Overall, growth is expected to slow toward more normal rates in the months to come, partly reflecting lower government spending as many pandemic programs, such as a salary support scheme, end.

One uncertainty is how the economy will adjust to the end of the furlough scheme, which was introduced at the start of the pandemic last March to ensure unemployment didn’t rise substantially when lockdown restrictions were imposed. Under the program, the government paid 80% of the salaries of those workers unable to work because of lockdown measures.

The programme, which is being phased out and due to end at the end of September, helped support over 11 million people but the number now is down below the 2 million mark as many sectors have reopened, notably hospitality. It kept a lid on unemployment, which remains relatively low at below 5%.

Sterling was little changed on Thursday as analysts expected the Bank of England to make no moves in its monetary policy after official data showed Britain’s economy grew in line with expectations in the second quarter.

The Office for National Statistics said the economy grew by 4.8% in the second quarter, in line with a Reuters poll of economists’ quarter-on-quarter expectations.

Analysts said the BoE was unlikely to make a move on the data. “The data is unlikely to move the needle on the BoE story and perhaps a widening trade deficit also prevents GBP from moving too much higher,” ING told their clients in a note.

British GDP remained 2.2% smaller than it was before the pandemic, a reminder of the damage done by Britain’s long coronavirus lockdowns last year.

Analysts also said they expected economic growth in Britain to slow down in the second half of the year. The GDP figures have yet to show the impact of a surge in coronavirus cases in July.

Finance minister Rishi Sunak repeated that he had no plans for a further extension of the furlough programme.

Stuart Cole, head macro economist at Equiti Capital in London, said “it is quite likely that the pace of growth has already peaked”.

“For sterling, while the economic landscape continues to provide solid support, it does suggest further topside progress will be slow,” he added.

Sterling edged 0.1% lower versus the dollar at $1.3848 by 1110 GMT, after rising in the previous session interrupting a 3-day losing streak versus the greenback.

Versus the euro, the pound traded just off 18-month highs touched on Tuesday and was 0.1% lower on the day, exchanging hands at 84.75 pence.

On a positive note, consumer spending in the week to Aug. 5 rose to within a whisker of its February 2020 level, according to other data published on Thursday.