The UK economic recovery is running out of steam – GDP grew just 2.1% in August despite government support

• The UK economy grew by 2.1% in August, well below expectations for an expansion of 4.6%. 
• The ONS said: “Although August 2020 saw the fourth consecutive month of growth it was the slowest rate of expansion since April 2020 and production industries growth was relatively subdued.”
• Across services, 65% of monthly growth came from accommodation and food and beverage service activities, with more businesses opening up to benefit from the government’s “Eat Out to Help Out”  scheme.
• Visit Business Insider’s homepage for more stories.

The UK economy grew by just 2.1% in August, its fourth month of expansion, but the pace of recovery from the coronavirus pandemic was far slower than expected, despite a raft of government measures to help prop up activity, according to data on Friday.

The Office for National Statistics said monthly growth in August was now 21.7% higher than April’s lows, but said the economy was still 9.2% smaller than it was before the pandemic first struck in February this year. Economists polled by Reuters had expected a monthly expansion of 4.6%.

This follows a 6.6% expansion in July. 

Read more: Citi’s US equities chief warns of an ‘extreme peak’ in earnings revisions heading into the crucial reporting season — and explains why it makes stocks vulnerable to a pullback in the weeks ahead

“Although August 2020 saw the fourth consecutive month of growth it was the slowest rate of expansion since April 2020 and production industries growth was relatively subdued,” the ONS said. 

By August, the strict lockdown restrictions that had been in place in the spring had been loosened for two months. Consumers took advantage of the government’s Eat Out to Help Out scheme, which gave diners 50% off meals, which in part drove the overall expansion in economic activity in August, the ONS said, adding that 65% of the increase had come from accommodation and food and beverage service activities.

 The economy contracted at a record 20.4% pace in April, when the pandemic was at its worst, with over 1,000 deaths a day at one point.

“The British economy only managed relatively weak growth compared to the previous month despite the government’s continued furlough programme and Brits gorging themselves on the Chancellor’s Eat Out To Help Out scheme,” CityIndex markets analyst Fiona Cincotta said. “The rebound was clearly already running out of steam in August, which doesn’t bode well for the coming months.”

Year on year, the economy contracted by 9.3% in August, less than the 11.3% that had been expected. 

The data had little impact on UK markets. The FTSE 100  was up 0.5% on early Friday morning, in line with other regional indices, while the pound rose 0.2% against the dollar and was steady against the euro.

Read more:Self-taught market wizard Richard Dennis took a $1,600 loan and turned it into an estimated $200 million. He shares the 13 trading rules that turned his performance parabolic.

The UK has suffered more deaths than any other European country from coronavirus, with fatalities over 41,000 and is witnessing one of the most dramatic increases in new cases of the virus, which has triggered scattered lockdowns and new restrictions across the country. 

Britain is also just weeks away from fully leaving the European Union and there is, as yet, no sign of a deal on trade between the government of Conservative Prime Minister Boris Johnson and the 26-member bloc.

 “With the resurgence of covid infections there is a good chance that the economic rebound from April’s record -20.4% will slow further,” Cincotta said.