U.K. gross domestic product (GDP) grew by 0.4 percent in August over July, but remains 0.8 percent below the pre-pandemic level of February 2020, the Office for National Statistics (ONS) said Wednesday.
The ONS also revised GDP for July 2021 down, from 0.1 percent growth to a 0.1 percent fall, due to a downward revision of data for the manufacture of motor vehicles, oil and gas, and improvements to how health output is measured.
Accommodation and food service activities, arts, entertainment and recreation were the top contributors to services growth in August. The ONS said accommodation and food service activities grew by 10.3 percent, while arts, entertainment and recreation grew by 8.5 percent.
Production output increased by 0.8 percent in August, the ONS said, attributing the growth mainly to the continued increase in the extraction of crude petroleum and natural gas following the recent temporary closure of oil field production sites for planned maintenance. That follows a 0.3 percent growth in July, revised down from 1.2 percent.
Construction fell by 0.2 percent in August, with the sector now 1.5 percent below its pre-pandemic level.
Economists see the figures as better than expected, but also as a sign that the growth is slowing for the foreseeable future after an initial post-lockdown burst. The U.K. economy is going into a “lower gear,” said Dutch bank ING. “It’s still likely to take until early next year before economic activity hits pre-virus levels.”
Meanwhile, HSBC said that consumer confidence was hit in the autumn, which may put further pressure on growth, while rising household bills are set to affect living standards. The U.K. “can handle the cost of living squeeze if consumers spend some of the money they saved in the pandemic,” its economics researchers wrote. “But falling consumer confidence complicates that. On one hand, consumers might choose to buy more in the near term in anticipation of higher prices further out. On the other, they might choose to hold on to their savings in anticipation of an income squeeze.”
Others were more optimistic. “We expect greater uncertainty into the autumn as supply shortages dampen confidence, however this will be offset by the positive effects of the full reopening of the education sector,” said the Institute of Directors.
The slower recovery is also posing a dilemma for the Bank of England, which in recent weeks has been strongly signaling interest rate hikes. “While the chances of an interest rate hike this year have recently risen, a weaker activity outlook means it’s not a done deal,” said Capital Economics in their own note.
This story has been updated.