MNI INTERVIEW: End Of Covid Activity Drags UK Down Q2 GDP

The phasing out of Covid-19 related activity in the three months to June, along with slower household spending, were the main reasons behind a decline in GDP, without which, the economy would probably posted a small positive growth number, the Office for National Statistics said Friday.

“Health was the biggest drag on the economy in Q2 as both the test and trace and vaccine programs were wound down," ONS Director of Economic Statistics Darren Morgan told MNI.

Some retailers also had a tough quarter, he said, but these were in part offset by a boost for some face-to-face services through the Jubilee period. Overall, though, the Jubilee celebrations added to the noise around the data, with some monthly volatility, but overall the impact of the holiday on the quarter's growth data was minimal.

Earlier Friday, the ONS reported UK GDP declined 0.1% q/q in Q2, slightly better than expected by the financial markets, where consensus estimates were for a decline of 0.2%. On the monthly reading, June saw the economy decline 0.6%, a reversal of the 0.5% growth seen in May. The two month reading for May and June was largely a wash, with the bank holiday adjustments in each month cancelling themselves out.

MIXED BAG

Overall, the latest data was mixed, according to ONS chief economist Grant Fitzner. Things certainly look 'bleak' at the moment he said, with real pressure on households. However, he again drew a distinction, similar to that seen in the midst of Covid, that the tougher times would likely fall on the lower income groups.

For many, any slowdown in the economy amid the surge in costs would likely lead to a tightening of budgets, but there would still be room for discretionary spending, albeit somewhat reduced. However, he accepted that for those in the lower income groups, higher energy and food costs would severely dent their spending power.

But at present, not all was doom and gloom, despite the headline outlook, at least not while unemployment remains at close to record low levels, he said.

As for the overall trend, Fitzner said there was no clear signal from the volatile monthly data in Q2, that was choppy, but smoothed out to show little in the way of trend growth in either direction.