UK economy picks up in August, underpinning BoE rate hike bets By Reuters

By David Milliken and William Schomberg

LONDON (Reuters) -Britain’s economic system returned to progress in August after contracting for the primary time in six months in July, holding intact monetary market bets that the Financial institution of England will start elevating rates of interest earlier than the tip of the yr.

Gross home product grew by 0.4% in August – a shade beneath market expectations in a Reuters ballot of economists – after it was revised down to indicate a drop of 0.1% in July when workers absences linked to the Delta variant of COVID-19 peaked.

“The economic system picked up in August as bars, eating places and festivals benefited from the primary full month with out COVID-19 restrictions in England,” Darren Morgan, director of financial statistics on the Workplace for Nationwide Statistics, mentioned.

Monetary markets have been little modified after the information, which confirmed a blended image on the affect of provide chain difficulties which have pushed up inflation and harm progress.

The BoE, going through a soar in inflation, seems set to be the primary main central financial institution to boost rates of interest because the begin of the pandemic. Buyers are betting on an increase to 0.25% by the tip of December, up from its all-time low of 0.1%.

After the newest official information, Britain’s economic system is now inside 0.8% of its pre-pandemic dimension – a a lot smaller hole than when the final month-to-month figures have been launched because of upward revisions to output progress earlier within the yr.

Nonetheless, the economic system stays round 5% smaller than if progress had continued on its 2010-2019 trajectory uninterrupted by the pandemic – not like the US which had nearly closed that hole as of the second quarter of 2021.

Britain’s economic system shrank by 9.7% in 2020, its joint-biggest drop in 300 years and matching the annual decline in 1921, when the economic system was nonetheless reeling from the price of World Conflict One.

The Worldwide Financial Fund forecast on Tuesday that Britain was on monitor to have the quickest enlargement of any nation within the G7 group of wealthy nations, rising by 6.8% this yr, though the outsize scale of final yr’s stoop means it would nonetheless take longer to recuperate than most of its friends.

SLOWING REBOUND

Britain’s economic system expanded quickly within the first half of 2021 helped by the quick preliminary roll-out of COVID-19 vaccines.

However this has slowed attributable to a wave of coronavirus circumstances and world provide chain chaos which in Britain has been exacerbated by new post-Brexit restrictions on commerce and immigration.

Development within the three months to August slowed to its weakest since April at 2.9%.

Chip shortages which had hampered carmakers eased in August, the ONS mentioned, serving to manufacturing return to progress, however automotive output was nonetheless greater than 14% beneath a peak in February.

Provide-chain shortages have been most seen in development, the place output fell for a second month in a row attributable to rising prices and shortages of metal, concrete, timber and glass.

The economic system can be prone to have taken an extra hit in September from short-term shortages of gas at many petrol stations in England – brought on by an absence of tanker drivers – and the affect of a surge in costs.

Samuel Tombs, economist at Pantheon Macroeconomics, mentioned expectations that the BoE would act imminently appeared misplaced.

“The continuation of modest GDP progress in August ought to persuade the MPC that the economic system doesn’t should be cooled instantly by elevating rates of interest,” he mentioned.

GDP would want to develop by an implausible 2.2% in September for it to match the BoE’s forecast in August for progress of two.1% within the third quarter as an entire, he added.

Separate information from the ONS instructed the affect of Brexit on commerce between Britain and the European Union was easing.

Imports of products from EU nations remained decrease than these from non-EU nations for an eighth month in a row however the hole was the narrowest since Britain left the bloc’s single market on Jan. 1.

The info confirmed the same image for British items exports to the EU, the ONS mentioned.