The U.K.’s economic activity level picked up further in the month of July, growing 6.6 percent, in line with the further easing in lockdown restrictions witnessed throughout the month. After rises in May and June, the July data signifies that the U.K. has rebounded a little over half of the output lost throughout March and April, during which lockdown restrictions were at their most stringent. Significantly, the rise in July output signifies that the U.K. is on track for a record rise in quarterly GDP in the third quarter, noted Lloyds Bank in a research report.
Delving into details, rises were recorded throughout all three broad sectors of the economy in July with output in both the industrial and construction sectors recording outturns exceeding expectations. Nevertheless, relative to expectations, the recovery in the largest part of the U.K. economy, the services sector, was slightly underwhelming.
Here, output was likely to record a more rapid recovery in July, compared to June, given the easing in lockdown restrictions noted throughout the month were more relevant for service sector industries. Especially, pubs and restaurants opened in July, while the temporary reduction in the rate of VAT for certain supplies of hospitality and leisure to 5 percent took effect from the middle of the month.
However, these factors should see output register another strong monthly outturn in August. Nevertheless, beyond there, the outlook appears slightly more challenging. The recent rise in the number of COVID-19 cases and the associated tightening in lockdown restrictions are expected to make the rebound from here slower, said Lloyds Bank. The Bank of England’s latest forecasts envisage the level of GDP clawing back up its pre-crisis level towards the end of next year.
"While this would be a relatively quick rebound compared to other downturn episodes, given the scale of the challenge facing the recovery, it is likely that both the Bank of England and UK government are likely to remain highly sensitive to any signs of faltering in the recovery. As such, the likelihood of further stimulus measures being deployed remains high, especially with the outlook challenged by a number of risks”, added Lloyds Bank.