RECOVERY IS GETTING UNDER WAY
■ Economy grew 6.6pc last month ■ But experts say firms still on brink
‘On the path to recovery’
THE economy has clawed back more than half its Covid-19 losses in only three months.
Gross domestic product (GDP) grew by 6.6 per cent in July as lockdown lifted and shops, restaurants and car dealers reopened, official figures showed.
The increase in GDP – the value of all the goods and services produced in Britain – follows a rise of 8.7 per cent in June and 2.4 per cent in May, and comes after a record 20 per cent fall in April, the first full month of lockdown.
It means the economy is now the same size as it was in 2013.
The Office for National Statistics (ONS) said the UK recovered around half the output it lost after coronavirus fully hit the economy.
It said growth was driven in part by education as some children returned to school, while car sales ‘exceeded pre-crisis levels for the first time, with showrooms having a particularly busy time’.
Pubs, campsites and hairdressers saw ‘notable improvements’ and there was a surge in construction and manufacturing. Reopening pubs and restaurants in July meant activity in the accommodation and food services industry rose by more than 140 per cent.
The ONS figures, which come as house prices hit record highs, mean the economy is on course for a ‘V-shaped’ recovery – one in which it rebounds quickly from a significant decline.
Experts said the progress was likely to have continued last month, due in part to the popularity of Chancellor Rishi Sunak’s Eat Out to Help Out scheme. Howard Archer, chief economic adviser to the EY ITEM Club, an economic forecasting group, said the economy ‘got off to a strong start in the third quarter’ and was on track for record growth in the July to August period. But despite springing back to life, it is 11.7 per cent smaller than in February, with sectors such as transport and arts and entertainment particularly hard hit and many businesses on the brink.
ONS chief Darren Morgan said that while Britain had ‘continued steadily on the path towards recovery’, the economy still had to regain nearly half the GDP lost since the pandemic started. Business groups and economists also raised fears that Boris Johnson’s ‘rule of six’ on social gatherings could delay recovery and deal another hammer blow to the hospitality industry.
Experts warned the closure of the Government’s furlough scheme at the end of October could lead to a spike in unemployment and put the brakes on growth.
There are also growing concerns that Mr Sunak may thwart the recovery by announcing tax rises in his November Budget as he tries to get the public finances on a more sustainable footing.
James Smith, research director at the Resolution Foundation think-tank, warned: ‘The rise in Covid cases and return of public health restrictions means we are coming towards the end of the easy economic wins from restarting activity.’
Thomas Pugh, at Capital Economics, said: ‘Now most sectors in the economy are open again, there is little scope for further large rises in monthly GDP.
‘Talk of tax rises, a further deterioration in the Brexit negotiations, a worrying rise in the number of virus cases and tighter social distancing restrictions will all conspire to slow the speed of the recovery further.’
Mr Sunak said: ‘While today’s
figures are welcome, many people are rightly worried about the coming months or have already had their job or incomes affected. That’s why supporting jobs is our first priority.’
Meanwhile, the Scottish Government is being urged to commit to there being no return to austerity, despite the cost of dealing with coronavirus.
The think-tank IPPR Scotland made the call as it published a report setting out how it believes the country can ‘rebuild a Scotland even better than before’ following the pandemic.
It stressed the need to help those ‘hit hardest’ by Covid-19, as it suggested extra payments be made to low-income families and ‘consideration should also be given to debt write-offs and amnesties’ by, for example, utility companies, landlords and even for local tax arrears.
The report insisted that a ‘key element of rebuild spending should come in the form of increased income supplements for low-income families in Scotland’.
These, it suggested, could be additional one-off lump sum payments, or alternatively increases in regular social security payments. Providing extra cash for poorer Scots would help ‘boost demand in the economy while supporting families now and narrowing inequalities following the crisis’, it said.
The think-tank called for a new social contract for carers and key workers ‘with an emphasis on improving pay and job quality’, and for priority to be put on ‘new progressive taxation’.