The food service sector did much of the heavy lifting in the UK's Q2 recovery
The UK economy grew for a fifth consecutive month in June with growth of 1 percent marginally ahead of expectations, though some commentators warned the recovery was “delicate” with the months in question not covering the so-called ‘pingdemic’ in July.
Overall second-quarter expansion of 4.8 percent was slightly behind the Bank of England’s forecast of 5 percent. The economy was still 4.4 percent smaller than at the end of 2019.
The recovery was driven by consumer demand, particularly food and beverage service consumption, up 10 percent since the UK’s ‘freedom day’ on 19 July.
Simon Lister, an IFA at financial comparison website InvestingReviews.co.uk, said the GDP data also showed clear areas of weakness, including in construction.
“There are without doubt some positives to take away from this data, but the economy remains as delicate as a house of cards,” Mr Lister said.
“As the economy opened up, and restrictions were relaxed, there was always going to be a spring in output but with the end of furlough looming, and sharply rising inflation, it could prove a dead cat bounce.”
He said the second half of 2021 would show a lot more about the economy, as the “stabiliser” of furlough was removed. The scheme will be completely phased out at the end of September.
“The two key questions are how long will this resurgence of consumer spending last and how quickly could sentiment change if unemployment starts to rise?” Mr Lister observed.
Douglas Grant, a director of Conister, part of AIM listed Manx Financial Group, said the plight of UK small businesses and current default levels should be “of real concern”.
“We must acknowledge that the UK’s business debt burden has ballooned to unprecedented levels and unfortunately this has already created a relentless flow of weak zombie-like companies falling off a loan default cliff,” he said.
Mr Grant applauded the introduction of the government’s ‘recovery loan scheme’, designed to help firms recover from the pandemic.
The pattern of growth was erratic, with a 2.2 percent burst of growth in April slowing to 0.6 percent in May before accelerating once more to 1 percent in June.
Steve Clayton, fund manager at HL Select, said he was optimistic that the figures knocked fears of the Delta variant on the head.
“With the big surge of the initial reopening behind us, we expect the pace of growth to moderate over the remainder of the year,” he said.
“But if businesses pick up the baton and start investing to support growth once more, then we could see upside to our already positive view of the prospects for the UK economy this year.”
The UK economy was running strongly ahead of the US and European equivalents.
Charles Hepworth, an investment director at GAM, said it was unlikely the pace of recovery would be sustained.
“Consumer expenditure drove the increase over the second quarter despite a rise in coronavirus infections and a lot of that spending will likely cool from these levels,” he said.
“It is [also] worth remembering that the ‘pingdemic’ fiasco is not reflected in this quarterly print, which will see some downward pressure on growth in the next quarterly print.”
