Investment Clock insights

UK Economy slowed, ahead of a tough Autumn


Melanie Baker

13 October 2020

The recovery continued in August, just slower than expected. UK GDP grew 2.1%M in August, compared to consensus expectations of 4.6%M. That follows growth of 6.4%M in July. Industrial production, construction and services output all grew less than expected. The level of GDP in August was still 9.2% below February.
A blend of government policy (Eat Out to Help Out in particular), continued recovery momentum following the reopening of the economy, and (relatively) low Covid case numbers will have helped the economy in August. The accommodation and food services sector was responsible for more than half the growth in August. As well as Eat Out to Help Out, ‘staycations’ were also credited by the ONS as boosting consumer demand.  High frequency data had looked consistent with a further pickup in activity, including mobility and restaurant bookings data. August retail sales already pointed towards continued recovery, albeit at a cooling pace.
If September saw zero growth in the economy, that would still leave Q3 GDP growth on track for a 15%Q rise.
However, with growth already slowing so much in August, and Eat Out to Help Out potentially playing such an outsized role, that leaves me feeling more cautious than before about the Autumn. Some of the supports for growth in August have faded and even turned to drags on the recovery. Eat Out to Help Out ended, the furlough scheme continues to be unwound, Covid numbers have been rising (now sharply) and social distancing has been tightened.  There has been plenty of Brexit uncertainty to go around too. All of that is consistent with the UK being in a slower, possibly bumpier, phase of the recovery for a while. Expectations are likely to grow for the Bank of England to announce a significant programme of asset purchases in November. 

The recovery continued in August, just slower than expected. UK GDP grew 2.1%M in August, compared to consensus expectations of 4.6%M. That follows growth of 6.4%M in July. Industrial production, construction and services output all grew less than expected. The level of GDP in August was still 9.2% below February.


A blend of government policy (Eat Out to Help Out in particular), continued recovery momentum following the reopening of the economy, and (relatively) low Covid case numbers will have helped the economy in August. The accommodation and food services sector was responsible for more than half the growth in August. As well as Eat Out to Help Out, ‘staycations’ were also credited by the ONS as boosting consumer demand.  High frequency data had looked consistent with a further pickup in activity, including mobility and restaurant bookings data. August retail sales already pointed towards continued recovery, albeit at a cooling pace.


If September saw zero growth in the economy, that would still leave Q3 GDP growth on track for a 15%Q rise.


However, with growth already slowing so much in August, and Eat Out to Help Out potentially playing such an outsized role, that leaves me feeling more cautious than before about the Autumn. Some of the supports for growth in August have faded and even turned to drags on the recovery. Eat Out to Help Out ended, the furlough scheme continues to be unwound, Covid numbers have been rising (now sharply) and social distancing has been tightened.  There has been plenty of Brexit uncertainty to go around too. All of that is consistent with the UK being in a slower, possibly bumpier, phase of the recovery for a while. Expectations are likely to grow for the Bank of England to announce a significant programme of asset purchases in November. 

Source: Refinitiv Datastream as at 15/08/2020

The views expressed are the author’s own and do not constitute investment advice.