The arrival of ‘freedom day’ on 19 July enabled people to return to concerts, festivals, and ditch social distancing, but these rediscovered freedoms did not revive the economy. The ONS said this morning that growth was just 0.1 per cent in July, far lower than the consensus forecast. It was particularly disappointing given the growth seen in the locked-down months of June (one per cent) and May (0.6 per cent). The Pingdemic – and concerns about the Delta variant – cancelled out any animal spirits around reopening.
Nightclubs reopened and the entertainment sector was up nine per cent, but the end of stamp duty hit real estate. Capital Economics attributes the stagnation to rising Covid cases and the ongoing pain caused by labour shortages (more on that here). These are factors that are not obviously set to change in the coming months.
If anything, case numbers are likely to worsen in autumn and winter. The raft of measures Boris Johnson is reported to want at his disposal this winter to contain the virus – including a renewal of the emergency powers that would enable the government to reinstate lockdowns – won't fill businesses with confidence. Meanwhile proposals to require vaccine passports jeopardise the return to normality for many customers and businesses. None of this bodes well for recovery.
August’s GDP boost is going to need to be much stronger for the more bullish forecasts to pan out. There’s some hope here: with the vast majority of the public no longer required to self-isolate after coming into contact with the virus, economic activity may pick up further in the coming months.
But Chancellor Rishi Sunak’s comments today, that ‘our recovery is well underway thanks to the success of the vaccination rollout and the roadmap’, don’t quite fit with the GDP update. Nor do the government’s most recent announcements about tax hikes on both employers and employees inspire much confidence that pro-growth policies around around the corner.