The UK economy grew just 0.1% in July as rising coronavirus cases and supply bottlenecks slowed recovery
The recovery in the UK economy slowed in July.
Niklas Halle’n / Getty Images
- The UK economy grew by just 0.1% in July, well below economists’ expectations.
- Rising COVID cases, supply problems and staff shortages weighed on growth, economists said.
- The pound and the country’s FTSE 100 stock index traded higher after the data was released.
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The UK economy barely grew between June and July as rising coronavirus cases and supply chain problems dragged the country’s coronavirus recovery into lower gear, the National Statistics Bureau said on Friday.
The GDP growth of 0.1% in July was well below the 0.6% expected by Reuters and the 1% growth in June.
The important service sector, which accounts for around 80% of the economy, recorded zero growth. Sharp production declines in retail and law firms offset growth in outdoor events as the economy continued to reopen.
The “pitiful” rise in GDP “shows that the economic recovery has stalled amid rising COVID-19 cases and increasing product and labor shortages,” said Paul Dales, UK chief economist at consultancy Capital Economics.
Dales said the 1.6% decline in construction output was “certainly due to bottlenecks” in the industry.
Most recently, the pound rose 0.22% against the dollar to $ 1.387, while the UK stock index FTSE 100 rose 0.34%.
Hussain Mehdi, macro and investment strategist at HSBC Asset Management, also identified coronavirus and supply chain issues as key issues for the UK economy.
“A combination of challenges from rising Covid case numbers, staff shortages and supply disruptions weighed on GDP growth for the month,” he said.
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The UK has lifted almost all coronavirus restrictions, with the UK going the furthest in hopes that high vaccination rates will keep hospital stays and deaths low.
However, after an initial decline, the country has recorded a large number of cases, which has exacerbated many companies’ problems in finding workers as the economy recovers.
International supply chain problems and material shortages caused by a rapid recovery in demand and coronavirus vases around the world have also hit some companies.
After a rapid recovery earlier in the year, UK growth has been strong and GDP remains 2.1% below pre-pandemic levels.
Some economists are concerned about stagflation – weak growth and high inflation like the one seen in the 1970s.
“We expect to hear next week that CPI inflation rose from 2.0% in July to 3.1% in August,” said Dales. “A standstill in GDP and rising inflation will leave a hint of stagflation in the air.”