Domestic holiday boom helped UK economy bounce back in August

Spending in bars, restaurants and festivals rose during first full month without Covid controls in England

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First published on Wed 13 Oct 2021 03.37 EDT

The boom in domestic holidays fuelled a rebound in Britain’s economy in August as bars, restaurants and festivals benefited from the easing of most remaining Covid restrictions during the height of summer.

The Office for National Statistics (ONS) said gross domestic product rose by 0.4% in August compared with the previous month as consumers increased their spending on leisure during the first full month without domestic government restrictions in England.

However, the ONS cut its growth estimate for July from a monthly rise of 0.1% to a fall of the same amount after fresh economic data revealed a worse hit for car manufacturing caused by global supply chain problems and shortages in computer chips, also known as semiconductors.

Reflecting a boom for holidaying in the UK while international travel restrictions largely remained in place, the latest snapshot showed activity in accommodation and food services, as well as the arts, entertainment and recreation, contributed the most to growth in the service sector of the economy.

The accommodation sector grew by 23% on the month, driven by spending at hotels and campsites during the key month of the school holidays for holiday destinations across the country.

Although air transport continued to expand as restrictions on foreign travel were gradually lifted – taking off by 27.5% in August – the figures showed activity remained 75% below pre-Covid levels.

Kevin Brown of the investment manager Scottish Friendly said the GDP figures were positive on face value but served as a reminder of the pressures bearing down on the British economy during a burgeoning cost of living crisis.

“In August, people were still enjoying the fruits of the end of lockdown, as the strong growth for services, holidays and dining out in the data suggests. Fast forward two months and that expansion has turned into a squeeze as cost pressures and overwhelming demand catch up,” he said.

Growth in August was offset by a decline in the health sector amid a drop in testing and vaccinations for Covid-19. Retail sales fell, reflecting shortages on the high street and consumers switching more of their spending from goods to services after the easing of pandemic controls.

Against a backdrop of pressure on international supply chains, production output – which includes manufacturing, energy and mining – grew by 0.8% whilecrude petroleum and natural gas output increa after recent temporary maintenance closures at an oilfield.

Challenges from soaring prices and shortages of materials including steel, concrete, timber and glass dragged down the construction sector, with output falling by 0.2% in August after a 1% drop in July.

Overall, the ONS said the economy remained 0.8% below its pre-pandemic level in August.

In a sign of continuing pressure on the economy, separate figures showed severe shortages of lorry drivers and supply chain disruption weighed heavily on UK trade volumes in August.

The ONS said goods exports fell by £1.3bn, or 4.6%, from a month earlier, and were driven by a sharp decline in shipments of cars and mechanical power generators to the EU and the rest of the world.

Paul Craig, a portfolio manager at Quilter Investors, said supply problems would no doubt weaken growth expectations for the months ahead as disruption caused by the coronavirus and Brexit dragged on the economy.

“The creaking UK economy is taking its time to spring back to life. The problems lie now not with demand but with supply. Acute labour shortages in several pockets of the economy along with chronic skills shortages have the potential to frustrate the economic recovery, and could well dampen any expectations for a strong economic revival over the winter months,” he said.

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