UK economic rebound from pandemic stronger than expected

·3-min read
Street performers play music for shoppers as lockdown restrictions have been relaxed to allow non-essential shops to reopen in England
The easing of lockdown restrictions meant the UK economy rebounded strongly in Q2. Photo: Getty

The UK's economic rebound from the pandemic was stronger than expected in the months from April to June, increasing by 5.5% compared with an estimate of 4.8%, according to the ONS.

The level of GDP is now 3.3% below where it was pre-pandemic at Q4 (Oct to Dec) 2019, revised from the previous estimate of 4.4% below.

In output terms, the largest contributors to this increase were from wholesale and retail trade, accommodation and food service activities, education and human health, and social work activities.

The ONS said there were increases in all main components of expenditure, with the largest contribution from household consumption, which contributed 4 percentage points to the 5.5% increase following the easing of coronavirus restrictions.

A rise in household spending of 7.9% saw the household saving ratio decrease to 11.7% in Q2, compared with 18.4% in Q1, which was the second highest on record.

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Annual UK GDP for 2020 is now estimated to have fallen by 9.7%, revised up by 0.1 percentage points from the previous estimate, while nominal UK GDP fell by 4.4% in 2020, revised from a first estimate of 4.8%.

Several countries have published estimates of GDP for the second quarter 2021. The UK experienced the largest increase in real GDP of these countries in Quarter 2 2021, in part reflecting the timing of the tightening and easing of public health restrictions in the first half of this year.

Of the other countries, Italy and Spain had the next largest volume increases in the second quarter 2021. However, these two countries are the furthest away from their pre-pandemic levels of GDP. The US is the only economy to have recovered to above pre-pandemic levels (0.8%).

The current account deficit remained much smaller in Q2 than its 4.2% average in the second half of the 2010s, thanks partly to the end of contributions to the EU’s budget. 

The £3.9bn ($5.2bn) deficit in current transfers was the second smallest since Q4 2008. A £0.7bn trade surplus also helped, though the primary income deficit of £5.5bn was much close to its prior norm. 

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"Looking ahead, we expect the current account deficit to widen gradually, as imports of travel services rocket when Brits begin to take overseas holidays again, and as the UK’s reliance on natural gas imports increases this winter," said Samuel Tombs, chief economist at Patheon Macroeconomics. 

"Sterling’s depreciation over the last week, despite the rise in expectations for UK interest rates, highlights how the persistent current account deficit leaves the pound sensitive to changes in global investor sentiment."

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