UK Economic Data Suggests Recovery Energised in September After a Sluggish July

UK Economic Data Suggests Recovery Energised in September After a Sluggish July

 Published: September 13th, 2021

New data on British economic activity points to a rebound in growth in early September, following a sputtering deceleration in July.

Near-term data from the UK’s Office of National Statistics (ONS) shows credit card spending rose by five percentage points in the week before 2nd September, rising to 98 per cent of its previous year (February 2020) average.

Economists will now sift through the data to determine whether a deceleration seen over the Summer months is ending and higher growth rates are returning, which is hinted at by other data releases.

In a note to investors, Oxford Economics said most of the gains from the UK’s post-lockdown reopening ‘are now behind us, so we’re moving into the recovery’s test phase’. The promise of more pent-up demand being released should mean more consumer spending, the research firm says, ‘…and our forecasts are still bullish’.

Credit card purchases point to growth

The ONS numbers use CHAPS same-day credit card data from the Bank of England. It provides a close to real-time indicator of UK credit and debit card spending, a reliable indicator of consumer demand. Economists use it to work out how Britain’s hoped-for recovery is advancing.

The latest numbers indicate a slight uptick, but the full data series release scheduled for this week will be of significant importance. That data will measure activity driven by the 'back to school' effect from the resumption of school classes on 5th September.

UK press reports from last week pointed to significant rises in commuter traffic as workers went back to the office after an extended period of home working. It suggests that an after-summer activity trend could make for a more definitive return to ‘normal for the British economy.

Transport for London said morning trips on the underground system were up 18 per cent from the previous week, while bus journeys were pulling 40 per cent more passengers.

ONS numbers counting the volume of motor vehicle journeys on Monday 6th September indicated they had reached 100 per cent of the level recorded in the first week of February 2020.

A seasonally-adjusted count of pedestrian and cyclists activity in London had grown by five per cent over the previous week, reaching 130 per cent of its pre-lockdown level.

Meanwhile, data from Eurocontrol captured a seven-day average of daily UK flights at 3,578 for the week ending 5th September, a five per cent increase over the previous week and the highest UK flight numbers seen in nearly 18 months.

Another indicator of economic rebound is the number of weekly seated diners recorded by OpenTable. Last week's data series is being discounted due to the UK’s late August bank holiday, so economists are waiting for next week's figures for a more precise measure of the return to work and its impact on meal spending around city-centre offices.

Will COVID return as well?

Rising COVID-19 cases and the arrival of the Delta variant of the virus dragged the UK's economic growth trajectory downward in the summer months as consumers took a more cautious approach to spending.

Virologists still see cases as high, but a growing acceptance that the virus isn’t going away paired with receding vaccine denialism might be reflected in buying behaviours.

In mid-August, the end of self-isolation rules meant people could go about their daily routines without worrying about a ‘ping' from the NHS COVID tracer app telling them to isolate due to recent contact with a virus carrier.

That dovetails with typical seasonal trends around the end of Summer holidays, school reopenings, and parents returning to work. But public health experts warn that coronavirus cases could boomerang back as cooler weather sets in, pushed along by the regular seasonal rise in infection rates for respiratory viruses.

A positive contrast to July

September’s brighter news came after a period of sluggish growth over the summer.

Official GDP data for July from the ONS show that Britain’s economy grew just 0.1 per cent from the end of June to the end of July, significantly less than the 0.7 per cent markets were anticipating.

Economists at Pantheon Macroeconomics told The Financial Times that the economic recovery ‘was effectively halted by a Covid-19 case surge in July.’

Output from the UK's giant services sector stayed broadly flat in July, and the most recent figures have it nearly two per cent under pre-pandemic levels.

July’s downturn was aggravated by the NHS app 'pingdemic,' where millions of people had to self-isolate after notification on their mobile phones that they had recently been in close contact with a coronavirus carrier.

Annual GDP growth was 7.5 per cent against a consensus expectation of 8 per cent, the main positive contributor being a rise of 1.1 per cent in industrial production.

The Confederation of British Industry (CBI) told Reuters that the UK’s economic recovery, even though small and slowing, ‘was to be welcomed given the presumed negative impact of the pingdemic on spending. The good news is that the recovery now looks to have regained momentum.’

The July slowdown was widely expected since several previous surveys suggested consumers were adopting a cautious approach to spending. The near-term data for August and September suggest an uptick in activity, giving hope that some of July’s lost output can be won back.

Also in the ONS release is the Business Impact of Covid-19 survey, which shows a 1.1 per cent month-to-month boost in turnover for August versus the 0.5 per cent posted in July.

For the entire month, OpenTable's restaurant diner numbers picked up in August as well, alongside rises in retail location footfall.

Economists at Pantheon Economics do warn, however, that some of the factors holding growth back in July haven’t gone away, labour shortages and supply chain issues in particular. They may have also taken some of the edge off growth going into Autumn."

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