MNI DATA IMPACT: UK Aug GDP Slows, Despite Eat Out Scheme

UK GDP grew by much less than expected in August, with a government-subsidised surge in restaurant takings the only bright spot in a still-stricken broader economy, data released Friday by the Office for National Statistics showed.

GDP rose by 2.1% in August, well below the more-than-4% increase forecast by economists. It was the smallest monthly increase since the economy hit its trough in April, leaving output 9.2% below its February level. Output declined by 9.3% over August 2019 and increased by 8.0% on a rolling three-month basis, the first rise since December.

About half the increase stems from the accommodation and food service service sector, which surged by 71.7% in August, lifted by the Treasury's 'Eat Out to Help Out' scheme and cuts to value-added tax in the wider leisure sector. Food and beverage takings added 0.9 percentage points to output, while accommodation contributed another 0.35pp, according to national statisticians. The category accounts for 3.7% of the service sector and 2.9% of GDP. The sector remains 13.7% below its February level.

The broader service sector increased by 2.4% in August, less than half the rise expected by City forecasters. Upward revision to the hard-to-measure education sector accounted for approximately one-third of the increase in services, according to a statistician. August growth was driven by an "unusually-small number of industries," according to a National Statistician.

Hospitality industry subsidies ended in August, raising questions about the sustainability of the economic recovery, particularly with large swathes of the UK now back under some form of Covid-related restriction.

MANUFACTURING

The other output components increased by less than forecast in August. Manufacturing rose by 0.7% and remains 8.5% below its February level. Total production increased by 0.3%, to sit 8.5% below pre-pandemic levels. And construction expanded by 3.0%, leaving the sector 10.8% smaller than in February.

GDP growth for July was revised to 6.4% from the originally-reported 6.6%. However, monthly output in April, May and June was revised higher, which was reflected in the Q2 National Accounts data released at the end of September.

The trade surplus fell to GBP1.364 billion in August from GBP1.698 billion in July. Excluding precious metals, the trade deficit in goods narrowed to GBP6.849 billion from GBP7.497 billion.