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UK economic growth to smash official forecasts this year

The UK economy will grow faster than official forecasters expect this year and the rate of expansion will be higher in the long term, according to a new report released today.

Ratings agency Fitch says the British economy will grow 6.6 per cent this year, higher than the Office for Budget Responsibility’s four per cent forecast.

The successful vaccination programme in the UK enabled policymakers to lift economic restrictions quicker than other rich nations, providing a boost to the economy throughout the second quarter.

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The relatively earlier reopening of the UK economy has dampened British consumers’ concerns about catching Covid and driven spending to similar patterns seen before the pandemic, Fitch said.

The link between rising Covid cases and weaker economic activity has been severed as consumers have acclimated to living with the virus.

The OBR does think the UK economy will grow faster in 2022. However, its 1.7 per cent growth forecast for 2023 is significantly lower than Fitch’s prediction of a 2.2 per cent expansion in output.

The UK economy is anticipated to grow faster than both the US (6.2 per cent) and Eurozone (5.2 per cent) this year.

According to the Office for National Statistics, the UK economy grew just 0.1 per cent in July.

Fitch upped its inflation forecast for the UK, hiking to reach 3.4 per cent annually by the end of this year and four per cent in early 2022. Despite both these figures being above the Bank of England’s target, the ratings agency does not expect the Old Lady to hike rates until 2023.

According to the ONS, consumer price inflation and input inflation currently sit at 3.2 per cent and 11 per cent on an annual basis.

Ongoing worker shortages and sustained supply chain snarl ups could derail the economic recovery, Fitch noted.

By Jack Barnett

Source: City AM

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Sunak’s relief over rising UK employment may be short-lived

Rishi Sunak is too savvy an operator to declare victory in the battle against unemployment because the past 18 months have shown that the unexpected can happen, and often does.

Yet while noting that there could still be “bumps in the road”, the chancellor is certainly relieved by how well the UK labour market has recovered from the effects of the Covid pandemic.

The latest jobs bulletin from the Office for National Statistics showed the employment rate up and the unemployment rate down. Job vacancies hit 1m for the first time in July and the number of hours worked a week – while still below their pre-crisis levels – passed 1bn for the first time since early 2020. Without question, this was an extremely strong report.

Three big imponderables remain. The first is whether the labour market will be knocked off course by the large number of daily cases of the Delta variant of the virus being reported in recent weeks. Thus far, the boost to employment from reopening the economy after its winter lockdown has outweighed any headwinds from the “pingdemic” or consumers becoming more nervous due to fears of falling ill.

The second issue looming is whether unemployment will start rising now the furlough scheme is being phased out. Wage subsidies have been – along with the development of vaccines – one of the two main success stories of the past 18 months and the TUC says it is premature to bring them to an end next month.

Sunak thinks the furlough scheme can be phased out relatively painlessly because half the people still on the scheme are on flexi-furlough, working some hours in their old jobs.

The ONS said there was no evidence of redundancies increasing before employers having to make a contribution to the costs of the furlough in July, which supports the chancellor’s view that firms are less likely to make people redundant if they are paying a share of their wages.

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Even so, the continued problems of certain sectors and the structural changes to the economy since the start of 2020 – more working from home and an increase in online shopping, for example – mean some dislocation is inevitable.

Finally, there is the question of what the Bank of England does in response to a labour market in which there appears to be little spare capacity. In the three months to June, annual growth in average earnings reached 8.8%, up from 7.4% in the three months to May and the highest since the current series began 20 years ago.

On the face of it, there is a case for immediate action from Threadneedle Street to prevent a wage-price spiral.

Appearances can be deceptive, however. Most of the annual increase in earnings was due to weak wage growth during the spring of 2020 and the fact that job losses were concentrated in low-paid sectors such as hospitality. Underlying pay growth once these factors are stripped out is running at 2%, according to Ruth Gregory, a senior economist at Capital Economics. Threadneedle Street has no need to rush into a decision: it has time to see how things pan out in the next few months.

By Larry Elliott

Source: The Guardian

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Perfect storm of glitches constrains UK economy

Severe shortages of raw materials, constrained labour supply and persistently high furlough rates are putting the UK economy in a vice, according to new official figures released today.

The Office for National Statistic’s latest business insights survey shows almost one in three hospitality firms are finding it harder to recruit workers compared to normal times.

One in four businesses reported higher prices for key inputs used in production processes, up from 21 per cent in May, with half of construction firms noting increases in input costs.

A staggering 67 per cent of businesses said a paucity of suitable candidates to fill roles was putting the brakes on recruitment activity, with professional and scientific firms experiencing the most acute skills shortages.

Despite figures released by the Treasury this morning showing the number of furlough workers had dropped to its lowest level since the onset of the Covid crisis, the rate at which people are leaving the scheme has slowed.

340,000 left furlough July, down sharply from 550,000 in June, prompting experts to warn Britain could face higher joblessness after the scheme winds down fully in just three weeks’ time.

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Charlie McCurdy, Economist at the Resolution Foundation, said: “The number of people coming off furlough over the summer has slowed to a trickle, as some firms and sectors – notably overseas tourism – struggle to return to pre-pandemic levels of activity.”

“As a result, up to a million employees could still be on furlough when the scheme closes at the end of this month.”

“While we expect most of these staff to return to their previous roles, a significant number will not, and we could see a fresh rise in unemployment this autumn.”

There are still 1.6m people on furlough, highlighting the scale of the mismatch between the supply of and the demand for labour in the UK. Data released by the Recruitment and Employment Confederation and KPMG today shows candidate supply levels fell at the fastest rate on record in August, while businesses ramped up hiring activity.

Severe supply and demand imbalances are prompting businesses to raise wages in a bid to attract talent, which is fuelling inflationary pressures. However, according to the ONS, 15 per cent of all British businesses cannot afford higher wages to attract workers.

There are concerns over whether worker shortages will clear. The governor of the Bank of England, Andrew Bailey, warned yesterday he is worried about persistent worker shortages producing stickier than expected inflation.

The ONS estimates inflation currently stands at two per cent annually. But, the Bank expects it to rise to four per cent by the end of the year.

By Jack Barnett

Source: City AM

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Bank of England governor says UK’s economic recovery is slowing

The governor of the Bank of England, Andrew Bailey, has warned UK’s economic recovery from Covid-19 is slowing amid supply chain disruption and staff shortages.

Answering questions from MPs on the commons Treasury committee, Bailey said there was evidence of the recovery “levelling off” despite the easing of pandemic restrictions earlier in the summer.

He said the economic fallout from the disease had “attenuated a lot” over recent months, helping growth to rebound. “But it’s still within the context of this imbalance in demand for goods and services. At the moment we’re seeing some levelling off of the recovery, the short-term indicators are suggesting that,” he said.

The Bank’s governor suggested that Covid disruption to global supply chains, which have upended industries from car making to hospitality, had proved more persistent than expected by Threadneedle Street earlier this year, as higher rates of coronavirus infections and heightened demand for manufactured goods put pressure on shipments.

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He said there had been an expectation that consumer demand for goods would increasingly switch to services as pandemic restrictions were relaxed, but that had so far not happened as much as expected. “There’s this underlying story of imbalanced demand, which we thought would by now have been well on the way to correcting itself,” he said.

Bailey said much of the inflationary pressure caused by the pandemic would eventually fade, adding that current high levels of global commodity prices – such as steel, agricultural goods and oil – were likely to fall because market prices typically tend to revert back to average levels over time. “We expect the bottlenecks to sort themselves out,” he added.

However, he expressed concern about a continued shortage of workers, which could last longer than material shortages and push up inflation. “Others will speak for themselves, but I have a bit more concern about persistence in the labour market story,” he told the committee.

Economists are concerned that shortages of workers and supplies, coupled with red hot demand for goods and services, could fuel persistently high levels of inflation as the UK emerges from the pandemic. Threadneedle Street forecasts inflation will hit 4% this year, before gradually falling back towards its 2% target rate.

Bailey said the Bank’s rate-setting monetary policy committee would probably be forced to raise interest rates from the current level of 0.1% to combat inflationary pressures over the next two to three years.

Lifting the lid on the MPC’s decision making process, he said the committee was evenly split four-four at its August meeting when weighing up whether the economic conditions had been met for raising borrowing costs.

Bailey said he felt the conditions for a rate rise had been met, while deputy governors Dave Ramsden and Ben Broadbent said they agreed. Silvana Tenreyro, an external member of the MPC, said she disagreed.

It comes after Michael Saunders, another external MPC member, said earlier this week that interest rates may needed to rise next year.

The MPC voted unanimously last month to keep interest rates unchanged, while Saunders cast a sole dissenting vote to stop short the Bank’s £895bn quantitative easing bond-buying programme.

By Richard Partington and Julia Kollewe

Source: The Guardian

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Staff shortages could last two years, warns CBI

A leading business group is urging the Government to take urgent action to tackle the staff shortages, warning that labour supply problems could last up to two years.

The CBI said there is growing evidence of staff shortages, which are continuing to disrupt firms as they battle to recover from the impact of the pandemic.

Director-general Tony Danker said the challenge extends beyond a lack of HGV lorry drivers, which is hitting supplies of goods to supermarkets, pubs and other businesses.

He called on ministers to marry skills policies to roles with the highest unfilled vacancies, add greater flexibility to the apprenticeship levy and use their “immigration levers” to alleviate short-term pressures.

The CBI said standing firm and waiting for shortages to solve themselves is not the way to run an economy.

Mr Danker said labour shortages are biting across the economy, adding: “While the CBI and other economists still predict growth returning to pre-pandemic levels later this year, furlough ending is not the panacea some people think will magically fill labour supply gaps.

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“These shortages are already affecting business operations and will have a negative impact on the UK’s economic recovery.

“Other European countries are also experiencing staffing shortages as their economies bounce back.

“In the UK, many overseas workers left during the pandemic, affecting sectors including hospitality, logistics and food processing, and new immigration rules make replacing those who left more complex.

“The Government’s ambition that the UK economy should become more high-skilled and productive is right, but implying that this can be achieved overnight is simply wrong, and a refusal to deploy temporary and targeted interventions to enable economic recovery is self-defeating.

“The CBI has heard from companies actively cutting capacity because they can’t meet demand, like the hoteliers limiting the number of bookable rooms because they don’t have enough housekeeping staff and can’t get linen laundered.

“Meanwhile, some restaurant owners have had to choose between lunchtime and evening services when trying to make the most of summer.

“It’s also visible to consumers when lead-in times for purchases like kitchens or furniture double.

“Employers back existing Government schemes to get people back into work, and businesses are already spending significant amounts on training, but that takes time to yield results, and some members suggest it could take two years rather than a couple of months for labour shortages to be fully eliminated.”

GMB union general secretary Gary Smith said: “We are paying the price for years of cost-cutting and austerity on workers’ pay and conditions.

“Instead of easing the labour market crisis, a furlough cliff-edge risks choking a recovery before it even begins.

“The lessons of the last decade must be learned – you can’t cut your way out of a crisis.

“It’s time to end Britain’s race to the bottom on pay and conditions.”

A Government spokesman said: “We are closely monitoring labour supply and working with sector leaders to understand how we can best ease particular pinch points. Similar challenges are being faced by other countries around the world.

“We want to see employers make long-term investments in the UK domestic workforce instead of relying on labour from abroad. Our Plan for Jobs is helping people across the country retrain, build new skills and get back into work.

“The Government encourages all sectors to make employment more attractive to UK domestic workers through offering training, careers options, wage increases and investment.”

Source: Shropshire Star

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UK economy lost more momentum in August, PMI survey shows

UK economy – Britain’s economic recovery from the COVID-19 pandemic lost more momentum last month than originally estimated as staff shortages and supply chain issues weighed on companies in the country’s huge services sector, a survey showed on Friday.

The IHS Markit/CIPS UK Services Purchasing Managers’ Index (PMI) fell to 55.0 in August, revised lower from a preliminary “flash” reading of 55.5 and down sharply from 59.6 in July.

Overall the survey added to signs that British economic growth has slowed somewhat in the last month or so.

The PMI marked a fifth month above the 50 threshold for growth and a record share of services companies said they were hiring staff – but they also struggled against rising costs.

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“Many survey respondents commented on long wait times to fill vacancies and an unexpectedly high staff turnover as the UK economy reopened,” said Tim Moore, economics director at IHS Markit.

A separate survey published earlier on Friday by the Recruitment & Employment Confederation also showed employers were still hunting for more staff than they were just before the pandemic, added to signs of a tight labour market after COVID-19 lockdowns and Brexit.

IHS Markit said consumer demand slowed last month after an initial post-lockdown surge.

Others said a slowing property market caused by partial withdrawal of a tax break on home purchases, a lack of tourists and Brexit trade frictions dampened growth too.

The composite PMI, which combines the services and manufacturing sectors, fell to 54.8 in August from 59.2 in July.

Reporting by Andy Bruce

Source: UK Reuters

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Pound Sterling Losing Shine against the Euro, a Sell Against Dollar says Nomura

“Is GBP losing its shine?” queries Jordan Rochester, Global FX Strategist for Nomura in a new research note on the UK currency that comes as we move into the new month.

“We argue yes,” is his the answer.

Rochester joins other economists in noting the UK economy’s growth rebound to have slowed over recent months and says this dents the bullish stance his team have held on Pound Sterling during much of 2021, particularly against the Euro.

“There are problems popping up ahead in the UK’s macro outlook,” he says.

The list of concerns on the outlook cited by the Nomura analyst includes slowing credit card spending, sideways mobility data, falling data surprises and rising COVID-19 cases amongst the elderly.

The call comes in the same week that IHS Markit’s PMI report for August showed a sharp slowdown in private sector activity in the UK, amidst persistently strong costs facing businesses and staff supply shortages.

The list of headwinds is therefore a long one.

“Data surprises for the UK are falling in a big way and it matters,” says Rochester.

The British Pound rose sharply in the first three months of the year as the hard-hit UK economy exited its winter lockdown.

But the Pound’s gains have since stalled with the Pound-to-Euro exchange rate trending sideways in a loose range below 1.18 but above 1.16. Against the Dollar the recent trend has been lower, with the Pound-to-Dollar exchange rate peaking at 1.42 in June and falling back towards the 1.36 support region.

Nomura are now ‘short’ the Pound against the Dollar in anticipation of a weaker Pound.

But there are however some recent signs that UK consumer sentiment has improved of late, which could yet keep the Pound supported.

Consumer activity has picked up again during August as the UK’s Covid rates pulled back from June highs and settled into an unremarkable trend.

Of note this week was the CBI Distributive Trades survey which showed the retail sector was experiencing a decent rebound in activity in August following a slump in July.

The CBI reported a large jump in the reported sales balance to a six-and-a-half year which will undo a portion of July’s 2.5% month-to-month decline in the official ONS retail sales data.

“With the recent distributive trades survey data suggesting the UK recovery narrative, driven by the consumer, remains in play we remain biased towards looking for EUR/GBP to trade lower,” says Jeremy Stretch, Head of FX Strategy at CIBC Capital Markets.

Pound Sterling Live reported last week that the British Pound could retain support amidst expectations that the recent slowdown in UK economic growth will give way to a stronger late Summer expansion.

A new near-term survey of UK business activity out last week showed that 60% of businesses in the leisure and hospitality sector were projecting a surge in revenue over the August Bank Holiday weekend, with 13% preparing for the busiest Bank Holiday in a decade.

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According to the Barclaycard Payments SME Barometer, confidence among small and medium sized businesses is returning to pre-pandemic levels, with 40% planning to hire additional staff over the next 12 months.

Confidence returned amidst unremarkable Covid-19 case trends and the ending of the restrictive test and trace policy in the middle of August.

How this confidence can sustain itself heading into the Autumn will matter greatly for the Pound’s outlook.

Above: If the UK’s data can start surprising positively, the GBP could be better supported. Image courtesy of Nomura.

Inflation is expected to pick up sharply and approach the Bank of England’s projected 4.0% level which will prove a headwind for consumers, while Covid cases are likely to spike once England’s schools return, as they did in Scotland.

For now expectations are that the bar is set high for the reimposition of Covid restrictions, but the pandemic has had a tendency of throwing up ugly surprises.

“The UK’s COVID-19 situation is not as good as it could be,” says Rochester. “Vaccines have made a big difference, the UK’s restrictions are much more relaxed than they were, but case data are still rising and, most importantly, rising among highly vaccinated, older age groups”.

“We are approaching Autumn with schools set to return (expect a spike in cases from next week), and there are eight times more hospitalisations now compared to a year ago. Vaccine passports, new restrictions and overall lower mobility might be the path ahead. Hopefully that is not the case, but it remains a risk for some time to come,” says Rochester.

When it comes to exchange rates it is critical to remember that relativity is key: the UK economy might be slowing, but there are also signs the same factors impacting the economy are also impacting other countries and regions.

One only needs to look at the rapid economic slowdown in the Asian and Pacific region as countries feel the strain of the Delta variant.

The U.S. is also witnessing a rapid slowdown in activity with the previous week’s PMI survey for August showing private sector expansion slowed sharply in August amidst capacity constraints and Delta variant spread.

Ultimately for exchange rates, how the relative developments impact central bank policy matters.

If the Bank of England sticks with its path towards a 2022 interest rate rise the Pound could remain supported, particularly against the Euro which is burdened by the European Central Bank which is in no mood to even contemplate a rate rise.

The Bank of England will likely raise rates ahead of the ECB courtesy of the UK’s hot inflation levels which they anticipate will reach 4.0% by the time 2021 is done.

How that inflation behaves over the duration of 2022 will be key for the Pound’s longer-term outlook in that expectations for a number of rate rises at the Bank will surely increase if inflation remains stubbornly high.

Higher interest rate expectations reflect in higher yields paid on UK bonds, which tends to translate into support for the Pound.

“We expect UK CPI to double from around 2% towards 4%. Such an increase would be hard for the BOE to ignore and is the main risk to holding short GBP exposure right now. Growth may be slowing, but inflation could cause more hawkish comments from the BOE into year-end,” says Rochester.

While Nomura are looking for Sterling weakness against the Dollar via their short GBP/USD recommendation, they are still fancying the Pound to retain support against the Euro.

Short EUR/GBP (a trade that looks for the Pound to rise against the Euro) still makes sense to Rochester given UK bond yields are likely to remain above Eurozone yields as a result of central bank policy divergence.

“This might be all that matters,” says Rochester.

“However, the problem is that it is a very slow moving trade that has been rangebound for quite some time now. EUR/GBP’s medium- to long-term path is clearly lower, in our view,” he adds.

Written by Gary Howes

Source: Pound Sterling Live

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Possession claims double as evictions ban ends but are way off ‘normal’

Evictions by landlords and letting agents have restarted with earnest following the recent relaxation of court and bailiff restrictions, latest official figures show. The Ministry of Justice (MoJ) reveals that between April and June this year, possession claims more than doubled from 3,023 to 7,000; orders from 656 to 5431; warrants from 274 to 3,709 and repossessions from zero to 1516.

But, when compared to the same quarter in 2019, these actions have decreased by 74%, 75%, 73% and 80% respectively.

The evictions data reveals how the ongoing delays and complications of evicting tenants unless they are in serious rent arrears has prevented the ‘tsunami’ of eviction that had been predicted by some campaigning groups.

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For example the MoJ figures also show that the median average time from claim to eviction has increased to just under 60 weeks, up from 19 weeks in the same period during 2019.

Nevertheless, repossession activity in the courts is beginning to ramp up, as is bailiff activity following the lifting of restrictions on 1st June.

But lobbying group Generation Rent is worried that many tenants are still facing eviction.

alicia kennedy evictions“There are thousands more who have lost work and got behind on their rent during the pandemic, and will find it difficult to repay that, even if their income recovers,” says Director Alicia Kennedy (pictured).

“It is almost impossible to move to a new home if you’re relying on benefits, so these renters face huge uncertainty in the months ahead while they wait to be told when the bailiffs will arrive.

“Only a Covid Rent Debt Fund to clear these rent arrears will help renters back to their feet and remove the threat of homelessness from thousands of families. The government must act urgently to relieve this hardship.”

By Nigel Lewis

Source: The Negotiator

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UK recovery slows as shoppers make tentative return

UK businesses suffered a “sharp slowdown” in August as staff shortages and supply chain issues dented the country’s economic recovery.

Data from UK information provider, IHS Market, shows the index that tracks output among UK companies fell to 55.3 – a six-month low.

The reading was a steep drop from July’s 59.2, and came as staff shortages and problems across supply chains constrained the ability of businesses to do their jobs.

Even though the UK saw the fastest rise in employment since IHS data began in 1998, backlogs of work increased for the sixth month in a row as businesses struggled to keep up with customer demand.

The August reading remains above 50 – which means the economy is growing – but the pace of progress has clearly slowed.

The data came as property investment trust Shaftesbury said shoppers were returning to the high street again.

The London-listed firm said the retailers in its buildings had reported improving trade, focused on the weekend.

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Weekly footfall is now at between 50 per cent – 60 per cent of its pre-pandemic levels, Shaftesbury said.

Encouragingly, it put the recovery down to more than a rise in Londoners venturing out, stating that people were once again travelling to the capital for shopping trips and that there had been a visible rise in tourists visiting too.

Shaftesbury chief executive Brian Bickell said: “We expect that early autumn will see a return of the West End’s exceptionally large office-based working population, which has always been an important contributor to our local weekday economy.”

He added that the momentum of the past four months had provided “a sound platform for the continuing revival of London’s West End in the important months ahead, leading up to Christmas and into the new year, and the prospects for a return to pre-pandemic patterns of life and activity”.

The improvements can be seen in the rent that Shaftesbury was able to collect in recent months.

In the three months to June 30, the company collected 51 per cent of contracted rent, compared with just 40 per cent between January and March this year.

It is also filling more space in the high streets.

At the end of March, 8.4 per cent of Shaftesbury’s sites lay vacant, but by the end of July nearly half of this space had been filled and the figure had fallen to 4.6 per cent.

Elsewhere in the economic data, weaker recoveries were seen in both the manufacturing and service sectors, with the later recording the greatest loss of momentum since July.

Analysis of comments provided by survey respondents suggested that the incidences of reduced output due to shortages of staff or materials were fourteen times higher than usual, and the largest since the survey began in January 1998.

New order growth eased slightly in August, with stronger export sales helping to cushion a slower recovery in domestic demand.

By Bradley Gerrard

Source: iNews

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The UK economy is on a bumpy road to full recovery

UK economy – The economic effect from Covid-19 wasn’t actually that bad, was it? That may seem an odd thing to ask in an economy that shrank by 25 per cent in little over a month last spring, and whose recovery lags major competitors.

However, after last week’s bumper GDP growth figures, it isn’t as wide of the mark as you might think.

In simpler times, the 4.8 per cent quarterly growth we experienced through the spring would be near-enough unprecedented.

With the economy “only” a little over 2 per cent smaller in June than it was pre-virus, it’s almost guaranteed that the full recovery from the Covid-19 hit will be considerably quicker than after the global financial crisis of 2008.

Then, GDP took five years to recover; this time it’ll be closer to two.

The economic charts from the past two years reveal what looks much more like a “V-shape” recovery than many economic commentators had dared predict.

Yet, it’s too early to pop the Champagne corks. Further strong gains in economic growth will be harder to achieve.

While the UK will reach pre-Covid levels of activity early next year, it will take much longer for the economy to get back to where it would have been, had the pandemic never happened.

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The biggest challenge will be keeping up confidence; rising optimism amidst a rapid vaccine roll-out undoubtedly helped boost consumer activity last quarter. But the Delta variant – and the resulting “pingdemic” – has tested the public’s appetite to shop and socialise.

People are slightly more reluctant to leave home, if you look at the regular Office for National Statistics (ONS) social survey, and the recent recovery in card spending and transport usage has also stopped firmly in its tracks.

Worrying headlines about NHS pressure over the winter is only likely to amplify the consumer caution that has crept back in over recent weeks.

That matters, because as the International Monetary Fund (IMF) argued last year, people’s individual decisions to stay at home have often had a greater effect on economic activity than lockdowns themselves.

There are other challenges, too, as unemployment is still likely to rise as the furlough scheme ends, despite what the Bank of England forecasts say.

Pictures of empty supermarket shelves don’t help either. That’s not just a Brexit/pingdemic problem. Global supply chain disruptions are hitting British producers and pushing up prices. Meanwhile, the Treasury is preparing to dial back economic support over the winter.

As Boris Johnson keeps telling us we’re not “out of the woods” as far as Covid is concerned, the same is perfectly true for the UK economy.

By James Smith

Source: iNews

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