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- The UK economy grew just 0.1% in July, well below what economists were expecting.
- Rising COVID cases, supply problems and staff shortages weighed on growth, economists said.
- The pound and the country’s FTSE 100 stock index traded higher following the data release.
- See more stories on Insider’s business page.
The UK economy barely grew between June and July, as rising coronavirus cases and supply-chain issues knocked the country’s coronavirus recovery into a lower gear, the Office for National Statistics said Friday.
July’s 0.1% expansion in gross domestic product was well below the 0.6% economists polled by Reuters had been expecting and the 1% expansion in June.
The all-important services sector, which makes up about 80% of the economy, registered zero growth. Large falls in output in retail and law firms offset growth in outdoor events as the economy continued to reopen.
The “measly” increase in GDP “shows that amid rising COVID-19 cases and broadening product/labor shortages, the economic recovery has stalled,” Paul Dales, chief UK economist at consultancy Capital Economics, said.
Dales said the 1.6% fall in output in the construction was “surely due to shortages” in the sector.
The pound last was up 0.22% against the dollar at $1.387, while the UK’s FTSE 100 stock index was 0.34% higher.
Hussain Mehdi, macro and investment strategist at HSBC Asset Management, also flagged coronavirus and supply-chain issues as key problems for the UK economy.
“A combination of challenges from rising covid case numbers, staff shortages and supply disruptions weighed on GDP growth in the month,” he said.
The UK has removed almost all coronavirus restrictions, with the government in England going furthest in the hope that high vaccination rates should keep hospitalizations and deaths low.
Yet, after an initial drop, the country has registered high levels of cases, which have added to many businesses’ problems in finding workers as the economy has rebounded.
International supply chain issues and materials shortages, caused by a rapid recovery in demand and coronavirus vases around the world, have also hit some businesses.
After snapping back rapidly earlier in the year, UK growth has showed sharply and GDP remains 2.1% below its pre-pandemic level.
Some economists are starting to worry about stagflation – weak growth and high inflation of the sort seen in the 1970s.
“We expect to learn next week that CPI inflation jumped from 2.0% in July to 3.1% in August,” Dales said. “Stalling GDP and rising inflation will leave a whiff of stagflation in the air.”
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