UK economy’s Covid catchup may take years despite signs of cheer

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Rishi Sunak’s response to GDP figures was telling because of concerns over jobs

The response from Rishi Sunak to news that the economy grew by a hefty 6.6% in July was telling. Yes, the chancellor said, the rise in activity was welcome. But he was aware that many people were worried about losing their jobs or about making ends meet in the months to come.

That summed up neatly the glass-half-empty, glass-half-full nature of the latest health check on the economy from the Office for National Statistics. The good news was that gross domestic product has increased by more than 18% since the trough in output was reached in April.

The bad news was that the UK is little more than halfway to regaining the ground lost in March and April, when gross domestic product collapsed by more than a quarter. What’s more, it gets tougher from now on.

To be sure, August will see a further increase in output but restrictions on most of the economy had been lifted by July, so the scope for further big increases in activity will be limited.

The unexpected popularity of Sunak’s eat out to help out discounted meals scheme last month will provide a fresh boost to the accommodation and food services sector, where despite growth of a 140% rise in July, output was still 60% down on its pre-pandemic levels.

Getting the children back into school will also help because education is an important sector of the economy in its own right and because reopening the classrooms will allow parents to go back to their jobs.

All that, though, is history. The economy was still 11.7% below its pre-coronavirus peak in July, which leaves more ground to make up than in any previous post second world war recession. That catchup period is likely to take years not months.

There are three big reasons for that. First, unemployment is going up and that will have an impact on consumer and business confidence. Second, the massive support to the economy provided by the chancellor is being wound down. Finally, there has been a recent rise in the number of new Covid-19 cases, which has led to the government reimposing restrictions and putting on hold plans to reopen bits of the economy that remain closed.

Add in some Brexit uncertainty and all the ingredients are there for a marked slowing in the pace of growth between now and Christmas. A double-dip recession cannot be ruled out.

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