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UK economy grows on camping and dining out

The UK economy grew by 0.4% in August as more people dined out, went on holiday and attended music festivals.

The Office for National Statistics (ONS) said the services sector made the biggest contribution to economic growth in the first full month after all Covid restrictions were lifted in England.

It said arts, entertainment and recreation grew 9%, boosted by sports clubs, amusement parks and festivals.

There was also more demand for hotels and campsites.

Restrictions on social distancing were eased from 19 July.

The ONS said the UK economy is now 0.8% smaller than it was before the pandemic.

“The economy picked up in August as bars, restaurants and festivals benefited from the first full month without Covid-19 restrictions in England,” said Darren Morgan, director of economic statistics at the ONS.

“However, later and slightly weaker data from a number of industries now mean we estimate the economy fell a little overall in July.”

The ONS said economic growth fell by 0.1% in July compared with initial estimates of 0.1% growth.

Activity in accommodation and food services rose by 10.3% in August, within which hotels and campsites recorded 22.9% growth.

In travel, air transport and rail both grew in August as Covid-related measures eased, however both industry are still trading far below pre-pandemic levels.

‘Small rebound’

Emma-Lou Montgomery associate director at Fidelity International, said that while August’s growth “marks a small rebound” on July, “the worry remains that economic growth won’t even be in touching distance of pre-pandemic levels until well into next year”.

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She said supply chain disruption risks dampening consumer confidence.

“This all comes in the crucial lead up to Christmas, when suppliers and retailers should be firing on all cylinders,” Ms Montgomery said.”But with households facing steep price rises for everyday items, from the food shop through to the gas bill, there will be little desire – or capacity – to spend, spend, spend.”

Growth in the UK economy – everything produced, from new cars to haircuts to restaurant meals – isn’t at all slow by normal standards at 0.4% in a month. But we’re supposed to be bouncing back with growth of 7% this year.

What’s becoming increasingly clear, is that it’s not a lack of demand for goods and services that’s holding the recovery back but the inability of firms to supply that demand.

A big part of the reason? Shortages. In construction, for example, where business is not growing but shrinking, firms reported to the ONS that they’ve got healthy order books. But they can’t meet more orders, partly because of a shortage of materials in August (for example, wood and steel) and partly because of a shortage of skilled staff.

The ONS reports evidence that the shortage of haulage drivers is slowing down industries from pharmaceuticals to electric lighting. Exports of goods, too, are down by 13% compared with 2018.

Some of these shortages may be due to supply bottlenecks related to the post-pandemic global surge in activity. But without doubt some, notably the ongoing shortage of lorry drivers, are in large part related to Brexit.

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Elsewhere, economic growth was uneven with some sectors hit by shortages of materials. Output in construction fell by 0.2% in August and the sector remains 1.5% below pre-pandemic levels.

The ONS said: “This reflects recent challenges faced by the construction industry from rising input prices and delays to the availability of construction products – notably steel, concrete, timber and glass.”

The manufacturing sector expanded by 0.5% in August following a 0.6% in July. The ONS said growth was led by an increase in vehicle production “as it continues to recover following supply side challenges predominantly caused by the global microchip shortage disrupting car production”.

But it said the output in the manufacture of motor vehicles remains 14.5% below a peak in February this year.

Paul Dales, chief UK economist at Capital Economics, said: “Such drags may have become more widespread and significant in September and October, with the fuel crisis preventing some people from getting to work.”

He said Capital Economics’ activity indicator “suggests that GDP may not have increased at all in September”.

Martin Beck, economist at professional services firm, EY,said: “The recovery is certainly facing more headwinds.

“Rising inflation, driven by significant increases in energy prices, and the recent cut in Universal Credit are squeezing consumers’ spending power.”

Source: BBC

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UK economy picks up in August as GDP grows 0.4%

Bars and festivals lifted the UK economy as GDP grew by 0.4% in August, but remained 0.8% below the pre-pandemic level of February 2020, according to the Office for National Statistics (ONS).

The latest snapshot showed activity in the accommodation and food service sectors, as well as arts, entertainment and recreation, contributed most to growth in the UK’s dominant service sector, which makes up about 80% of the UK economy.

The service industries grew by 0.3% in August, bouncing back from a 0.1% drop in July, while manufacturing expanded by 0.5% following July’s 0.6% decline.

Overall production output climbed 0.8%, accelerating from July’s 0.3% rise, as crude oil and natural gas extraction bounced back following a temporary closure of oil field sites for planned maintenance. Construction continued to shrink, by 0.2%, and is now 1.5% below its pre-pandemic level.

Chip shortages which had hampered carmakers eased in August, the ONS said, helping manufacturing return to growth, but car output was still more than 14% below a peak in February.

In the three months to August, the economy grew by 2.9%, against forecasts of 3% growth.

The ONS also revised GDP for July 2021 down, from 0.1% growth to a 0.1% fall, due to a downward revision of data for the manufacture of motor vehicles, oil and gas, and improvements to how health output is measured.

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David Page, head of macro research at AXA Investment Managers, said the figures for August were disappointing. “The Bank of England (BoE) will take account of this latest data as it considers the outlook for monetary policy in the November Monetary Policy Report meeting.

“On the face of it the marked slowdown in economic activity into Q3 should serve as a warning against too swift a tightening in monetary policy, particularly as GDP looks set to face ongoing headwinds from higher utility prices, cuts in Universal Credit and eventually increases in National Insurance all pressuring household incomes over what threatens to be a difficult winter.”

Page said AXA IM changed their forecast to envisage the first hike (0.15% to 0.25%) by the BoE in February next year. “We then consider a second in August (to 0.50%) and a third in May 2023 (to 0.75%),” he added.

Victoria Scholar, head of investment, interactive investor, said: “All sectors of the economy are still smaller than before the pandemic, with consumer facing services around 5% below their peak. Pressure remains on the UK economic outlook with the cost-of-living crisis, above-target inflation and rising Covid cases.”

The IMF warned on Tuesday that the UK’s recovery from coronavirus would probably lag behind other countries and by 2024 the economy would remain 3% smaller than the level forecast. Other countries, it forecast, would return to the growth predicted before the pandemic.

Derrick Dunne, CEO of YOU Asset Management, commented: “With the ONS recording a 0.4% increase in GDP for August, it would be tempting to think that growth may be back on an upward trajectory, but investors should be taking today’s figures with a pinch of salt.

“Sectors like accommodation, food services and entertainment fared the best as infection rates fell and people rushed to socialise with family and friends, however the current picture is somewhat less rosy. The UK is faced with a supply chain crunch, rising prices and labour shortages, all of which could create a drag on GDP growth as we move towards the usually busy festive period.

“While the outlook for the economy remains broadly positive, investors would do well to review their strategy and ensure it’s equipped to withstand a more drawn out recovery.”

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, said: “Festival fans enjoying new-found freedom in August and strong campsite bookings helped lift economic output, with the arts entertainment and recreation sector growing by 9%.

“But the economy can’t rely on happy campers to sustain growth, given the storm clouds that have gathered over supply chains since the summer.”

Streeter predicts the Bank of England will not have an easy choice to make. “It certainly won’t be an easy ride for Bank of England policymakers when they meet next to decide when to raise interest rates. Moving too sharply could see the economy go into reverse, but the Bank won’t want to risk losing credibility if prices keep accelerating,” she said.

Paul Craig, portfolio manager at Quilter Investors, said: “The creaking UK economy is taking its time to spring back to life. The problems lie now not with demand but with supply. Acute labour shortages in several pockets of the economy along with chronic skills shortages have the potential to frustrate the economic recovery, and could well dampen any expectations for a strong economic revival over the winter months.

“Once more, the UK economy will be going through structural changes as we establish our future relationship with Europe and the outside world after Brexit. This structural dislocation will no doubt weaken growth expectations.”

Sarah Giarrusso, investment strategist at Tilney Smith & Williamson, warned that the UK still faces headwinds, such as labour shortages and supply chain disruption which could lead to higher, stickier inflation. “Despite this, consensus forecasts for 2021 and 2022 annualised real GDP remain firmly in expansionary territory at 7.0% and 5.3% respectively.

“We expect the UK economy to continue its recovery and the environment to remain conducive for equities to outperform bonds,” she added.

By Pedro Gonçalves

Source: Investment Week

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UK business output falls to lowest level since lockdown

UK business output has shrunk to its lowest level of growth since the reopening of the economy as staff shortages and supply chain disruptions battered productivity last month.

The closely-watched BDO Output Index suggests a slowdown across both manufacturing and services, falling more than five index points month-on-month to 100.69, effectively indicating average trend growth just months after the UK opened up.

The firm’s inflation index meanwhile jumped to a near ten-year high in the same month, as average prices continued to increase.

It is the latest in a series of data that suggest the UK recovery is slowing considerably, putting more pressure on Rishi Sunak ahead of the budget due at the end of the month.

Last week IHS Markit warned of a “severe loss of momentum” across the construction sector, often a bellwether for wider economic activity.

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The rise in energy prices, driven by higher wholesale natural gas costs, is being felt right across the economy.

“While a gradual deceleration in the pace of growth is to be expected as economies normalise after the pandemic, it is clear that acute labour shortages and supply chain disruption are weighing heavily on productivity,” said Kaley Crossthwaite, a partner at accountants BDO.

“Many businesses are caught between a rock and a hard place. Long-term planning for a post-pandemic and post-Brexit economy is crucial, but the significant challenges at their door make it increasingly difficult to focus beyond these short-term issues,” she continued.

The warning came just a week after Conservative party conference, during which PM Boris Johnson hailed the emergence of a new “high-skilled, high-wage” economy.

“Ultimately,” warned BDO partner Kaley Crossthwaite, “this could mean consumers end up paying more for less this winter.”

“Many businesses are caught between a rock and a hard place,” she said, acknowledging that long-term planning for a post-pandemic and post-Brexit economy, though crucial, was difficult for businesses dealing with the short-term issues.

Crossthwaite said: “The Chancellor’s autumn Budget will be watched closely later this month to see whether the government steps in to restore the confidence felt through the summer.”

The news follows a PwC report into consumer confidence which found that while consumer sentiment was still positive, and higher than in the period following the EU referendum, the energy crisis, inflation and driver shortage problems were starting to impact confidence in the run up to Christmas.

By Farah Ghouri

Source: City AM

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Shortages, inflation and slow growth fog UK economy

Britain’s economic bounce-back after coronavirus lockdowns is being hampered by problems in supply chains, a jump in inflation and the risk of a rise in unemployment, complicating the task for policymakers of steering the recovery.

Former Bank of England chief economist Andy Haldane says Britain is in a VILE era of volatile inflation, low expansion.

Financial markets now think the BoE is all but certain to raise interest rates by February but some economists, worried by signs of a flagging recovery, aren’t so sure.

Below are some of the gauges of Britain’s economy that are likely to be on the minds of economic policymakers.

INFLATION

Britain’s inflation rate hit 3.2% in August, its highest in almost a decade. Some one-off factors accounted for the record jump from July but the BoE thinks inflation is heading above 4%, more than double its 2% target.

The BoE is watching for any signs that consumers are losing confidence that inflation will be contained in the longer run.

Public expectations for inflation in the year ahead rose sharply in September, according to a Citi/YouGov survey which may have weighed on the minds of BoE rate-setters. They said last month that the case for raising rates was strengthening.

GROWTH FADING?

While Britain’s economy grew rapidly earlier this year as it reopened from a third COVID-19 lockdown, the latest readings show this momentum has largely dissipated. Economic growth slowed to a crawl in July, according to official data, and surveys of businesses and consumers suggest sluggish growth persisted into the second half of the year – even before the most severe supply chain problems seen in recent weeks.

SUPPLY CHAIN PROBLEMS

There has been no let-up in the supply chain and staffing problems for British manufacturers dealing with hefty delays from suppliers, according to the latest IHS Markit/CIPS survey of businesses.

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That was even before panic-buying at petrol stations, caused by a shortage of tanker drivers, led in late September to the biggest week-on-week drop in car traffic since early June – another unpromising sign for the economy.

The shortage of workers, something seen in other economies around the world, has worsened since Britain decided to leave the European Union and end free movement of workers from the bloc. But Prime Minister Boris Johnson denied on Tuesday Britain was in crisis and said its “natural ability to sort out its logistics and supply chains is very strong.

CONSUMER SPENDING

The supply chain disruption and rising inflation prompted a hefty hit last month to the GfK gauge of consumer confidence – historically a good indicator of household spending.

Households are also facing cuts to state benefits and tax increases for working people.

BoE data published last week suggested consumers are once again leaning more towards saving than spending.

JOBS AND WAGES

Britain’s unemployment rate has fallen in six of the last seven monthly reports, helped by the economic recovery and the government’s jobs-protecting furlough programme.

That scheme ended at the end of September and the BoE is keeping an eye on whether unemployment is about to rise again.

Wages have been rising fast although the official measure of earnings growth has been boosted by statistical distortions caused by the pandemic. Still, inflation has started to bite into earnings: the official real-terms measure of total wage growth has declined for three months running.

Reporting by Andy Bruce

Source: Reuters

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Confidence in UK economy slumps as costs rise – IoD

Company directors’ confidence in the UK economy has plummeted, according to a survey published on Friday, as costs continue to mount.

The Institute of Directors’ Economic Confidence Index slid to -1% in September from highs of 27% in June and 22% in July. It is the first time the index recorded a negative score since January 2021, at the start of the third national lockdown.

The survey found that 75% of respondents expected costs to be higher in the coming year than they were in the previous 12 months, while 61% anticipated wages would also rise.

But only 57% of respondents expected revenues to rise, while 20% thought they would be static and 21% predicted they would fall.

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Kitty Ussher, chief economist at the IoD, said: “The business environment has deteriorated dramatically in recent weeks. Following a period of optimism in the early summer, people running small and medium-sized businesses across the UK are now far less certain about the overall economic situation.

“A higher proportion of our members expect costs to rise in the next year than expect revenues to rise. This is not helped by the government’s recent decision to raise employers’ National Insurance contributions, which acts as a disincentive to hire just when the furlough scheme is ending.”

The IoD surveyed 635 of its members between 13 and 27 September. The survey has been traditionally carried out in most months with occasional omissions, such as May and August this year. From October, however, the survey will occur on a monthly basis, with the findings published on the first day of the month.

By Abigail Townsend

Source: ShareCast

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Improved picture for UK economy as concerns remain

Lorry drivers may be in short supply and fuel hard to come by at the pumps. But, things aren’t as bad as they seem. At least that’s according to the Office for National Statistics. Official statisticians have improved the outlook for the UK economy.

But such optimism is not shared by the Federation of Small Businesses which warns businesses may be facing ‘an autumn storm’.

At least the ONS in its revised figures doesn’t consider the UK economy to have suffered its worst collapse since the Great Frost of 1709 anymore.

The statistics show that in 2020, the year of Covid, GDP shrank by 9.69%, an improvement on the estimate of 9.8%, meaning things were worse in 1921. Just. That year saw a plunge of 9.71%.

The revised figures also show that GDP increased by 5.5% in April-June this year, better than the estimate of 4.8%.

But that may be of little comfort to small businesses facing ‘challenges on many fronts’, according to the FSB.

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Mike Cherry, National Chair of the Federation of Small Businesses (FSB), said: “From rising energy and input costs to staff shortages and supply issues, the removal of some of the support measures brought in to hold off the worst effects of the pandemic on businesses will be tough for many to navigate.

“It’s potentially a dangerous moment. As the weather turns colder, so too will the operating environment for many firms. With recent economic growth numbers having fallen below expectations, the upcoming festive season may not provide as much of a boost as hoped to many small businesses’ bottom lines.”

The skills shortage is continuing to bite – not least in tourism and hospitality, which also have to factor in a higher rate of VAT as well.

He added: “Firms feel assailed on all sides, from energy prices and fuel shortages to longer-term changes to taxes which will disincentivise growth and investment.”

However, Britain’s manufacturers hit a record high level of output and orders in the last quarter as growth surged in response to the UK and overseas economies opening up, according to Make UK and business advisory firm BDO.

Stephen Phipson, Chief Executive at Make UK, said: “Growth prospects continue to accelerate for manufacturers as economies at home and abroad continue to open up. However, supply chain shortages and the rapidly escalating increase in shipping costs are threatening to put roadblocks on the road to faster growth despite the current optimism.”

And, the Confederation of British Industry says that private sector activity grew at an above average rate in the three months to September, although there was a slowdown.

The slowdown was fairly broad-based, with growth softening in consumer services (+6% from +30%), distribution (+29% from +53%) and manufacturing (+16% from +22%). Meanwhile, business & professional services firms reported a slight uptick in the pace of growth (+39% from +32%).

Anna Leach, CBI Deputy Chief Economist, said: “The private sector recovery has slowed this month as the immediate boost provided by loosening COVID-19 restrictions fades amidst a mix of labour and materials shortages, and supply chain disruption.”

By Richard Wright

Source: Punchline Gloucester

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Ongoing worker shortages loom over UK economy

Endemic worker shortages putting the UK economy in a vice are set to persist for months to come.

Businesses’ demand for workers jumped three percentage points to 25 per cent, according to data from the Recruitment and Employment Confederation (REC).

Hiring intentions over the next four to 12 months also strengthened to 30 per cent.

A paucity of lorry drivers has led to supply chain snarl ups, causing shop shelves to lie empty and delivery times to sharply lengthen.

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A smaller pool of HGV drivers has restricted fuel from being transported around the UK, resulting in petrol station operators closing forecourts. Queues of motorists piling up outside petrol stations have been seen across the country.

“With demand for staff remaining high, the current labour shortages look set to continue for some time,” the REC warned.

The number of job vacancies in August this year topped 1m for the first time on record, according to the Office for National Statistics (ONS). Businesses have hiked pay in a bid to attract talent, which is putting pressure on margins and intensifying inflationary pressures.

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The government has announced 5,000 and 5,500 temporary visas for HGV drivers and poultry workers respectively in a bid to tackle staff shortages. The Road Haulage Association estimates the UK has around a 100,000 HGV driver deficit.

Neil Carberry, chief executive of the REC, said: “Driving is not the only sector being severely affected by labour shortages.”

“We’d like to see a collaborative approach going forward, with government departments and industry experts coming together in a joint forum to try and resolve this crisis.”

Experts and the Bank of England have suggested the end of the furlough scheme this Thursday will help ease worker shortages as staff return to the jobs market.

By Jack Barnett

Source: City AM

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Eviction orders jump 43 per cent since end of pandemic protection

Eviction orders from landlords and letting agents have jumped 43 per cent rise between the end of the eviction ban on 1 June and 1 September, according to new data.

With the period of notice landlords must serve to tenants brought back to pre-pandemic timescales from 1 October, two months for Section 21 and two weeks for Section 8, a continued surge in enquiries is expected, said eviction and housing law specialist Landlord Action, which compiled the data.

The majority of enquiries, approximately 90 per cent, are from landlords wanting clarification on the latest legislation, looking to evict tenants for non-payment of rent or expressing a desire to sell up and exit the buy to let market.

“Many landlords express their concerns over non-payment of rent and the continual changing of the process which is
now costing them more than they bargained for,” commented Paul Shamplina, founder of Landlord Action.

“The change back to pre-pandemic notice periods cannot come soon enough but we are having to warn landlords about delays in gaining possession due to the requirement for review hearings and a backlog of cases,” Shamplina added.

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Review hearings

Review hearings were introduced last year to help courts prioritise the most urgent eviction cases and determine which should proceed to a substantive hearing at a later date.

Despite the additional administration, it was anticipated that in some cases a settlement might be reached at review hearing stage, which would prevent the case having to go to court.

However, Landlord Action said that, of approximately 400 review hearings, they are only aware of one case that has received a possession order straight after a review hearing.

“We are dealing with a possession case involving £14,000 which was issued to Wandsworth County Court in
May 2021 and the review hearing is only scheduled for October 2021, five months later,” sighed Paul Sowerbutts, head of legal for Landlord Action.

In another case, which was due to be heard on Monday 6 September at Medway County Court, Sowerbutts was informed on Friday 3 September that due to a lack of judicial time, the hearing could not go ahead and there was no availability to move the case to another judge.

“We were asked for dates to avoid in the next 12 months suggesting that is how long it could be delayed for,” he said.

The changing legislation, which before 1 October of this year required landlords to provide proof of significant rent arrears in order to avoid a lengthy wait to serve notice, means there has been a shift in the type of notice landlords serve.

“Historically, a Section 21 notice was the quickest way to gain possession. Even though, in many cases, landlords forfeited their right to recoup lost rent, as this can only be achieved by using a Section 8 notice, most landlords accepted this was the quickest way to get their property back,” Sowerbutts said.

“Now we are seeing delays across the board, there is negativity by many landlords as to their future plans in the private rented sector,” he concluded.

By Michiel Willems

Source: City AM

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Majority of brokers see rise in second charge refurbs

An estimated 81% of second charge brokers have seen an increase in demand for finance for home refurbishment projects over the past six months, according to Shawbrook Bank.

Two-fifths (41%) used financing to fund a redecoration project, including fitting a new kitchen or bathroom, and another 41% used finance to fund an extension or loft conversion.

When asked about their outlook on the future, brokers who specialise in the second charge mortgage market were nearly three times more confident on the outlook for the lending environment for the rest of the year, compared to the end of 2020.

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The majority (87%) of seconds brokers were confident in the lending environment when thinking ahead to the remainder of this year, compared with just 30% when surveyed at the end of 2020.

Similarly, 75% said they were confident in the opportunity for business growth when thinking ahead to the remainder of this year – a significant rise from 19% in December 2020.

Gavin Seaholme, head of sales at Shawbrook Bank Limited, said: “The past 18 months have required many of us to spend longer at home than we ever would have before.

“With working, socialising and exercising all taking place within the same four walls it’s no surprise that people are looking to expand or make changes to their homes.

“While for many savings have gone up in lockdown, taking on a big renovation can quickly add up.

“If your client is planning to undertake a refurbishment or extension, large or small, it’s important to discuss all of their finance options with them.

“A number of landlords and property investors continue to rely on personal loans or credit cards to finance their DIY projects, which can be a riskier and more expensive approach to take.

“Understanding your client’s aims for the project as well as their current financial position will all help to inform the pathway they choose.”

By Jake Carter

Source: Mortgage Introducer

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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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