Growth slowdown proves government has mountain to climb in COVID recovery

Economic recovery from COVID-19 is not going to be as simple as lifting the restrictions that plunged most of the world into a deep, brief, recession in the first place.

That is the message from the latest UK GDP figures which showed the recovery stalled in July with growth registering just 0.1%.

This stagnation of what was already a slow crawl back towards pre-pandemic prosperity came despite the lifting of the final economic and social restrictions.

Labour shortages, in some cases exacerbated by Brexit, supply chain pressures, and public sensitivity to lingering high levels of the virus all had an impact.

While the government finally reached Step 4 on its roadmap in July, cases were still on their way up towards the fourth-wave peak at the end of the month and the ‘pingdemic’ was in full swing, forcing employees and customers into self-isolation.

Nightclubs, festivals, arts and music venues were able to reopen after 15 months of forced closure, while pubs and restaurants could welcome unrestricted numbers of guests and let them stand at the bar.

But a 9% increase in activity in the entertainment sector was not even close to enough to offset the drag of earlier COVID shutdowns.

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A decline in consumer-facing services in the month suggests that, finally free to make their own “common sense” decisions, consumers chose caution. Consumer facing services including food, drink and retails sales, were down 0.3%.

The global supply chain squeeze was evident in a 1.6% decline in the construction trade, where materials are in short supply as a consequence and more expensive as demand has surged back.

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Growth of 1.2% in the production sector was the only thing preventing a completely flat line in the month, and that was due to the reopening of oil fields that had been closed for maintenance. Without them, according to the National Institute of Economic and Social Research, the Chancellor would have been looking at a month of negative growth.

Instead Rishi Sunak issued a blithe statement that ignored the numbers, cited payroll numbers and vaccination rates, and promised, as ever, to “Build Back Better”.

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Whether that commitment can be more than a slogan may rest on the outcome of the Treasury’s bet on furlough and test the government’s faith in Brexit.

While growth is expected to be more robust in August, labour shortages, particularly of HGV drivers, are weighing heavy, with wage and price inflation already evident.

Business groups and the haulage industry say granting short-term visas to EU drivers is the only way to avoid a Christmas crunch but, thus far, ministers are insisting companies train and hire British workers instead.

They hope some of those will come from the 1.6 million people still on furlough until the end of this month, when the scheme ends and employers must finally choose whether their roles are still viable.

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