UK economy picks up in August, underpinning BoE rate hike bets By Reuters
© Reuters. FILE PHOTO: The Metropolis of London monetary district will be seen within the background as folks sit at an out of doors eating space throughout sunny climate on the south aspect of the River Thames in London, Britain, September 7, 2021. REUTERS/Henry Nicholls
By David Milliken and William Schomberg
LONDON (Reuters) – Britain’s economic system returned to development in August after contracting for the primary time in six months in July, conserving intact monetary market bets that the Financial institution of England will start elevating rates of interest earlier than the top of the yr.
Gross home product grew by 0.4% in August – a shade below market expectations in a Reuters ballot of economists – after it was revised down to point out a drop of 0.1% in July when workers absences linked to the Delta variant of COVID-19 peaked.
“The economic system picked up in August as bars, eating places and festivals benefited from the primary full month with out COVID-19 restrictions in England,” Darren Morgan, director of financial statistics on the Workplace for Nationwide Statistics, mentioned.
Monetary markets had been little modified after the info, which confirmed a combined image on the impression of provide chain difficulties which have pushed up inflation and damage development.
The BoE, dealing with a leap in inflation, appears set to be the primary main central financial institution to boost rates of interest for the reason that begin of the pandemic. Buyers are betting on an increase to 0.25% by the top of December, up from its all-time low of 0.1%.
After the newest official information, Britain’s economic system 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 within the yr.
Britain’s economic system shrank by 9.7% in 2020, its joint-biggest drop in 300 years and matching the annual decline in 1921, when the economic system was nonetheless reeling from the price of World Conflict One.
The Worldwide Financial Fund forecast on Tuesday that Britain was on monitor to have the quickest enlargement of any nation within the G7 group of wealthy nations, rising by 6.8% this yr, though the outsize scale of final yr’s droop means it would nonetheless take longer to get better than most of its friends.
Britain’s economic system expanded quickly within the first half of 2021 helped by the quick preliminary roll-out of COVID-19 vaccines.
However this has slowed because of a wave of coronavirus circumstances and world provide chain chaos which in Britain has been exacerbated by new post-Brexit restrictions on commerce and immigration.
Progress within 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 mentioned, serving to manufacturing return to development, however automobile output was nonetheless greater than 14% beneath a peak in February.
Provide-chain shortages had been most seen in building, the place output fell for a second month in a row because of rising prices and shortages of metal, concrete, timber and glass.
The economic system can also be more likely to have taken an additional hit in September from non permanent shortages of gas at many petrol stations in England – attributable to an absence of tanker drivers – and the impression of a surge in costs.
Samuel Tombs, economist at Pantheon Macroeconomics, mentioned expectations that the BoE would act imminently regarded misplaced.
“The continuation of modest GDP development in August ought to persuade the MPC that the economic system doesn’t must be cooled instantly by elevating rates of interest,” he mentioned.
GDP would want to develop by an implausible 2.2% in September for it to match the BoE’s forecast in August for development of two.1% within the third quarter as an entire, he added.
Separate information from the ONS instructed the impression 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 info confirmed the same image for British items exports to the EU, the ONS mentioned.