UK economy grew 6.6% in July as Covid-19 restrictions eased

But mounting job losses and risk of messy Brexit threatening turbulent end to the year

A handout image released by 10 Downing Street shows Britain’s chancellor of the exchequer Rishi Sunak.

A handout image released by 10 Downing Street shows Britain’s chancellor of the exchequer Rishi Sunak.


Britain recorded strong growth in July as coronavirus restrictions eased, but mounting job losses and the risk of a messy Brexit are threatening a turbulent end to the year.

Gross domestic product rose 6.6 per cent from June, when it gained a record 8.7 per cent. After restaurants and bars started to reopen in early July, the figures show the country has clawed back just over half of the output lost during the lockdown. Economists had forecast 6.7 per cent growth.

While the rebound is welcome after the 20 per cent contraction in the second quarter, the UK is facing a triple hit that could force policy makers to increase monetary and fiscal support for the economy.

Cases of the virus are rising, the government’s plan to end its furlough program could cause a jump in unemployment, and a disruptive split from the European Union hangs over the outlook.

All sectors grew strongly in July, led by construction, the Office for National Statistics said Friday. But output is still 11.7 per cent lower than it was in February, and analysts warn a return to pre-pandemic levels may be a long way off.

Risks include mass job losses as government wage support is withdrawn; renewed curbs to tackle a recent spike in Covid-19 infections; and the end of the Brexit transition period.

Firms will see the imposition of tariffs, quotas and customs checks unless Britain and the EU strike a trade deal before the end of the year.

The GDP figures come in a week that saw the prospect of an agreement recede dramatically, after prime minister Boris Johnson threatened to break international law and re-write the divorce deal he struck last year. That has sent the pound lower in recent days.

The threats are piling pressure on officials in the UK to do more to shore up the economy. The Bank of England, which has expanded its asset-buying program and cut interest rates to near zero, has declared it has plenty of room to add monetary stimulus, even including negative rates if needed.

The chancellor of the exchequer, Rishi Sunak, meanwhile is facing calls to extend wage support for workers in the hardest-hit sectors. The fear is that well over a million people could lose their jobs if the program ends in October, as the government currently proposes.

The impact could derail the economy’s revival from its 22 per cent contraction in the first half -- the deepest slump among major advanced economies.

Recent activity reflects pent up demand and government stimulus such as a temporary tax cut on home-buying and subsidies for eating out during August.

Such spending has pushed government debt above £2 trillion ($2.6 trillion) for the first time. That’s affordable for now because of ultra-low borrowing costs, but Sunak has warned of “difficult decisions” ahead -- a hint that tax rises will be introduced once the economic crisis has abated.

The dilemma of how to wind down aid, yet still support growth and contain the virus, is also playing out across Europe. Most governments oppose reinstating widespread lockdowns to control the pandemic again after severe restrictions earlier in the year pushed the continent into an unprecedented recession. - Bloomberg