Continued Economic Recovery Put in Doubt By Delta Variant

Continued economic recovery put in doubt by Delta variant

Figure 1 - UK GDP

Main points

• May’s month-on-month growth of 0.8% disappointed, with little sign of momentum in either April or May outside the sectors which grew due to the lifting of Covid-19 restrictions.
• With several indicators showing slowing activity after the spring momentum, we expect growth in June of 0.9 per cent, and 4.8 per cent for the second quarter of 2021 overall.
• With catch-up potential still evident in hospitality, transport, business support and the arts, we forecast growth of 1.9 per cent in the third quarter, still notably above historical trend growth rates.
• But with Covid-19 cases rising again, and consumer caution evident, the lifting of further restrictions on July 19th risk boosting the economy in the short term at the expense of a longer lasting and more sustainable recovery. Much will depend on the roll-out and efficacy of the vaccines in the context of the Delta variant.

Rory Macqueen, Principal Economist - Macroeconomic Modelling and Forecasting, said: 

“Like April, May’s GDP growth was faster than usual but almost entirely driven by the lifting of Covid-19 restrictions, with the hospitality sector accounting for 0.7 percentage points of May’s 0.8 per cent growth. Underlying growth is moderate outside the sectors being unlocked, with supply constraints contributing to the continuing recent stagnation in manufacturing. It remains to be seen whether the lifting of further restrictions in July contributes to a continuation of strong growth in the third quarter or – if cases of Covid-19 continue to rise – increased caution among consumers and even another national lockdown.”