The latest ONS data suggest that UK GDP increased by 4.8% in April-June 2021. As coronavirus restrictions were eased, and people returned to pubs, bars and live events, many areas of the economy began to recover. But risks remain present, and longer-term the picture is less clear.
On 12 August, the Office for National Statistics (ONS) released its first estimates for UK Gross Domestic Product (GDP) for the second quarter of 2021. GDP is estimated to have increased by 4.8%, compared to a 1.6% contraction in the previous quarter. Much of this expansion can be explained by the gradual easing of coronavirus restrictions across the UK, starting end of March 2021.
Figure 1: UK quarter on quarter GDP growth (Indexed: 2019Q4 = 100)
Back in business
With non-essential services reopening in April, and crowds piling into pubs and bars throughout June and early July to enjoy the European Football Championship, consumer-facing services boomed. According to the latest data, accommodation and food services, alongside wholesale and retail trade, performed particularly well, enjoying an 87.8% and 12.8% output growth, respectively. This is reflected in consumer spending trends, with household consumption accounting for over 90% of the rise in expenditure, largely thanks to spending on restaurants, hotels and travel.
Gradually, as businesses reopened, people started to return to work or school in-person. The education sector is estimated to have grown by 51.9%, as classrooms reopened across the UK. Government spending in health also increased to meet rising demands for vaccines and NHS Test and Trace services, as more and more people require regular testing and/or proof of vaccination for work or to attend events.
Figure 2a: Contributions to services output growth, Quarter 1 2021
Figure 2b: Contributions to services output growth, Quarter 2 2021
Business investment also increased, rising by 2.4% over the period April to June. This seems to confirm findings from a survey conducted by the Bank of England in June, which found that the percentage of businesses which viewed the level of economic uncertainty as high or very high to be the lowest it has been since the beginning of the pandemic.
But uncertainty remains
Although UK GDP appears to be back on the rise, it remains 4.4% below pre-Covid levels. The 4.8% expansion also falls short of the 5% forecasted by the Bank of England. The effect of rainy weather, the ‘pingdemic’ (which left over one million people self-isolating in July after coming in close contact with someone who tested positive to coronavirus), and the ongoing restrictions on travel may further dampen economic recovery expected over the summer.
A study by the Centre for Cities shows that although people returned in large numbers to pubs and restaurants following the end of restrictions, many high street businesses like cafes and shops did not perform as well. This may be because many people are still working from home, decreasing week-day shopping and dining.
Finally, compared with the US, France, Germany and Spain, the UK has seen the largest growth in GDP this quarter. But UK GDP remains the second lowest compared to pre-pandemic levels, with the US the only country in this group to have returned to pre-crisis growth levels.
Where can I find out more?
- The latest ONS data release can be found here.
Who are the experts on this question?
Nick Bloom, Stanford University
Paul Mizen, The University of Nottingham
Michael McMahon, Oxford University