Economy hit by pingdemic, and tax rise could dent it further

Surging infections, absent workers and supply chain problems led to stagnant growth, experts warn

THE UK’S economic growth ground to a virtual halt in July during the pingdemic, as economists and Tory MPS warned that Boris Johnson’s £36 billion tax raid threatened to further stifle recovery.

The anaemic growth of 0.1 per cent leaves the economy 2.1 per cent below its pre-pandemic peak during a month when the surging delta variant triggered a wave of absent workers, and companies scrambled for raw materials amid global supply chain disruption.

The weakest growth for six months came after Andrew Bailey, the Bank of England governor, warned MPS of “some levelling-off of the recovery” despite the lifting of pandemic restrictions on July 19.

Economists also warned of the impact of the Government’s latest tax grab on the economy as rises in National Insurance and dividend levies from next April are set to bring tax as a share of the economy to the highest since the Second World War.

Julian Jessop, economics fellow at the Institute of Economic Affairs, said: “While there are good reasons to think this is only a temporary pause, the Government needs to focus on boosting growth rather than raising taxes … Now is clearly a bad time to be ramping up the tax burden even further.”

Josie Dent, managing economist at the Centre for Economics and Business Research, added: “The upcoming end of the furlough scheme and termination of the £20-a-week universal credit uplift also present risks to the recovery.”

The figures have alarmed Conservative MPS, who fear the NI hike will act as an anchor on growth when ministers should be seeking to cut taxes and accelerate the recovery.

Sir John Redwood, the Tory MP, said: “All priority should be given to growing the economy. The way to get the deficit down is lower taxes and opening up. We were doing extremely well so let’s not slam the brakes on growth.”

Richard Drax, the Tory MP, added: “By attacking the wealth creators by raising tax we are in fact reducing revenue. We are behaving like Labour-lite. Business, which is the engine room of this country, needs to be unfettered in order to generate the wealth and jobs we need.”

The shock figures prompted warnings from the Confederation of British Industry that companies would remain under pressure from weak growth, a shortage of HGV drivers and other workers, and supply-chain disruption.

Alpesh Paleja, the CBI’S lead economist, said: “To help ease these pressures, temporary, targeted interventions are needed to enable businesses to keep their doors open – for instance, placing HGV drivers on the Shortage Occupation List could make a real difference.”

The slowdown came after growth ground to a halt in the services sector – the largest part of the UK economy.

Construction output also shrank for a fourth month in a row as the sector was hit by raw materials shortages and the economy overall only managed to eke out growth thanks to a 1.2 per cent rise in industrial production.

Freedom Day on July 19 delivered rapid 9 per cent growth over the month for sports clubs, amusement parks and festivals after almost 18 months in the doldrums.

But it was offset by sliding retail sales as well as lower activity in areas such as legal services and property as the Government’s stamp duty holiday became less generous.