UK’s Recovery From Crisis Continues
The UK’s recovery from the Covid-19 pandemic continued for the third month in a row in July, although the economy has regained little more than half the ground lost since the start of the crisis.
The office for National Statistics (ONS) reported gross domestic product (GDP) rose by 6.6pc in July compared with the previous month. Shops reopened and manufacturing activity resumed, continuing a bounce back from the crisis as lockdown measures were eased.
Rishi Sunak, however, made preparations for a delay to the autumn budget in a statement to the House of Commons, reflecting the fragile nature of the UK’s economic rally as the number of coronavirus infections rises.
The chancellor did not set a date for the traditional tax and spending event, but told MPs he had asked the Office for Budget Responsibility (OBR) to draw up economic forecasts to be published in ‘mid to late November’.
Such a move is unusual because the official forecasts normally accompany the budget. Sunak had been deliberately vague to enable the budget to be delayed due to the economic uncertainty surrounding the coronavirus, government sources indicated.
Concern that recovery will stall
The reopening of hairdressers, pubs and campsites led to a boost in activity in July, while car sales exceeded pre-crisis levels for the first time, according to the latest official growth figures.
Manufacturing activity recovered and housebuilding activity increased after widespread stoppages during lockdown, although the ONS said production and construction levels were still well below previous levels.
The unprecedented 20pc contraction in April during lockdown was greater than in any other advanced economy, but was followed by growth of 2.4pc in May and 8.7pc in June, leading to the recovery in July. GDP fell by 7.6pc over the quarter to the end of July, with reductions across all main sctors of the economy.
There are concerns that the UK’s economic recovery from the crisis will stall as job losses increase and demand for goods and services remains subdued while risks to public health from the virus endure. GDP is not expected to return to pre-crisis levels before the end of next year.
Thomas Pugh, UK economist at consultancy Capital Economics, believes that the Government’s ‘eat out to help out’ scheme fuelled activity in August as consumers were lured back to restaurants across Britain. But despite most sectors of the economy having reopened, there is now little opportunity for further large increases in monthly GDP.
In addition, he said, rumours of tax rises at the next budget, the worsening of the Brexit negotiations, a concerning rise in the number of virus infections and tighter social-distancing restrictions all contrive to slow the recovery even further.
Businesses lobby for more support
Business groups called on the chancellor to extend the furlough wage subsidy scheme to mitigate a huge rise in redundancies this autumn. They also said a deal with the EU and further government support for jobs would be vital in creating a sustainable economic recovery from the crisis.
Suren Thiru, head of economics at the business lobby group, British Chambers of Commerce, said that while many firms continue to face an unparalleled cash crisis and unemployment seems bound to surge as the support schemes wind down, there is little prospect of a prolonged recovery unless significant action is taken.
Sunak said that the Government had continued its support for businesses and households by cutting VAT for the tourism and hospitality sectors, launching the ‘eat out to help out’ scheme and pouring money into job creation schemes.
He knew, he said, that many people have already had their jobs or incomes affected and are worried about the coming months. This is why the Government’s first priority is to support jobs and why they have created a comprehensive plan for jobs to ensure nobody is left without hope or opportunity.