The UK economy has grown by 4.8 per cent in the second quarter of the year, showing that it is recovering stronger than expected. Here, Dr Catherine Robinson, Deputy Dean of Kent Business School and Senior Lecturer in Applied Economics and Statistics gives her view on the latest figures…
“The figures released by ONS last week indicate a real GDP growth of 4.8% on the previous quarter’s GDP. On one hand, this figure looks relatively modest compared to growth last year (16.9% in Q3) and it is relatively unsurprising that we see strong growth, given that this quarter (April-June 2021) saw the UK economy emerge from the Covid-19 lockdown restrictions imposed in the early part of 2021. However, the level of growth is historically high for the UK which has experienced on average, growth levels around 0.5% for the past decade.
“First and foremost, pent-up demand is driving this growth. Breaking down the numbers we see that the source of the growth in GDP comes from consumer spending (household expenditure). The underlying data highlights the growth in services especially.
“There have been a number of recent studies using national data that has identified retail as the chief source of the growth but I think more interesting is the fact that regionally, we have seen evidence that coastal economies have been recovering faster. This suggests that some of the improvement is linked to hospitality, leisure and tourism as people seek to get out and about. I believe we are likely to see strong growth in the next quarter, albeit without the ‘bounce’ from lockdown.
A note of caution?
“GDP growth is still 4.4% below pre-pandemic levels, so we have lost a couple of years’ worth of growth. A more pessimistic interpretation of the figures highlights the fact that gross fixed capital formation – growth in investment – is still negative at -0.5%. For GDP growth to be maintained in the medium run, we will need to see some positive growth in this figure – this is the engine of the economy.
“Related to this, and another area for concern for the economy as a whole is inflation which is currently running at 2.4% – 0.4% higher than the Bank of England considers to be acceptable. This is related to the higher levels of consumer demand we are seeing, along with positive wage growth (1.7%) and if these continue to rise, we will see interest rates rising to dampen down demand.
“But we must also note that the 4.8% growth figure we have been seeing in the media is NET of the inflation, so this is very much real GDP growth. This shows these stats to be a very positive sign, but sustained economic growth will require growth in investment if we are to maintain a strong recovery.”
Dr Catherine Robinson is Deputy Dean (Head of KBS Medway) and Senior Lecturer in Applied Economics and Business Statistics at Kent Business School.