- GDP growth of 0.1% month-on-month (m/m) in July was the smallest monthly rise this year and fell well short of expectations. July’s rise in COVID-19 infections and the increased number of those isolating due to being contacted by the NHS COVID-19 app likely contributed to the slower pace of expansion.
- These headwinds eased in August, so activity should have made up some of July’s weakness. Less room for catch-up growth means the recovery is entering a tougher phase. But the economy should still expand by more than 7% in 2021.
Martin Beck, senior economic advisor to the EY ITEM Club, says:
“Activity confronted two challenges in July – a rapid rise in both COVID-19 infections and the number of people contacted by the NHS app and told to self-isolate. The resulting disruption and drag on consumer sentiment help to explain a slowdown in GDP growth to 0.1% month-on-month, much lower than the consensus expectation of 0.5% month-on-month growth. This compared with growth of 1% month-on-month in June and was the smallest rise this year.
“Although some parts of the services sector gained from the relaxation of COVID-19 restrictions on 19 July, overall services output was flat. Industry expanded 1.2% month-on-month as some oil fields reopened following routine maintenance, but construction output fell 1.6% month-on-month. July’s outturn left the economy still 2.1% short of its pre-pandemic size, albeit the smallest shortfall since the pandemic began.
“Growth should have picked up in August. Lower infection numbers and less stringent self-isolation rules will have reduced the scale of virus-related disruption. And the boost from the end of domestic COVID-19 restrictions on 19 July should have become more apparent. Nonetheless, the bulk of the gains from the reopening of the economy are now behind us, so a tougher phase of the recovery beckons. But the promise of strong rebounds in consumer spending and business investment mean the EY ITEM Club continues to believe that the economy is likely to grow by more than 7% this year. However, uncertainty about the virus, and the impact of labour and component shortages, mean risks are skewed to the downside.”