Share Prices & Company Research


09 October 2020

UK Economy’s Recovery Slows

The UK economy grew by 2.1% in August from the previous month of July, albeit at a much slower rate than many were anticipating. Economists had suggested that the UK would produce a 4.6% expansion in August with a significant boost from the hospitality sector as lockdown restrictions eased and government support schemes helped to stimulate the economy, but with growth in other sectors lagging, it fell short.

Growth in the UK’s service industry, which accounts for around 80% of total economic output, expanded by 2.4%, with industrials and construction also recording growth. Nevertheless, all three remain lower than that of pre-pandemic levels, with construction still down over 10%. The winter months will likely prove pivotal for the UK, where we would now expect to see a much slower economic rebound than previously expected, with the recent data, coupled with further regional lockdowns, limiting the upside potential of the recovery.

This is likely to mean that jobs, both new and existing are now increasingly at risk. With a faster pace of recovery, we would expect to see the number of job losses as the furlough scheme comes to an end, decrease, however, with many firms now planning redundancies, unemployment may take a hit in the coming months. The effect on young people is likely to be increasingly profound, with many recent graduates just finishing university, struggling to find a full-time job. Boris Johnson’s recent announcement of 5% deposits for first time buyers is likely to help young people onto the housing ladder but, given the recent stamp duty holiday and subsequent rebound in house prices, even 5% may be a stretch for some.

Given the lacklustre set of results, pressure will certainly be mounting on both the Bank of England (BoE) and the government to do more to support the economy. However, with interest rates at an all-time low of 0.1%, the question remains of how much more firepower do central bankers have at their disposal? Expectations that Andrew Bailey and his team at the UK’s central bank will expand their quantitative easing programme have increased, however, helping to expand the country’s monetary supply and stimulate the UK economy. Forecasts are calling for an extra £250bn in quantitative easing by the end of next year, which could in turn prop up inflation above the 2% target, however, given the US Federal Reserve’s indication that it will tolerate higher than that value, we could see the BoE willing to do the same in order to keep interest rates low for the foreseeable future.
UK Economy’s Recovery Slows
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