The British economy performed much worse than expected in August

The United Kingdom’s economy struggled to grow in August, setting back its recovery from the coronavirus lockdown, and finance minister Rishi Sunak was due to announce more help to slow a rise in job losses as a second wave of COVID-19 infections hits.

Gross domestic product (GDP) rose by 2.1 percent from July, official data showed, not even half the median forecast in a Reuters poll of economists and the slowest increase since the economy began to recover in May from a record slump.

Much of what growth there was in August was down to a one-off government restaurant subsidy programme.

Finance minister Rishi Sunak was due to announce later on Friday a plan to support jobs in businesses that may be ordered to close to slow a resurgence of coronavirus infections. Economists said the data also raised the chance of more monetary stimulus from the Bank of England.

“Today’s figures show our economy has grown for four consecutive months, but I know that many people are worried about the coming winter months,” Sunak said.

“Throughout this crisis, my single-focus has been jobs – protecting as many jobs as possible – and providing support for people to find other opportunities where this isn’t possible. This goal remains unchanged.”

Analysts said the latest data highlight the many economic challenges the UK still faces.

“The sharp slowdown in growth indicates that the recovery may be running out of steam, with output still well below pre-crisis levels,” Suren Thiru, head of economics at the British Chambers of Commerce, said.

“The increase in activity in August largely reflects a temporary boost from the economy reopening and government stimulus, including the Eat Out to Help Out Scheme, rather than proof of a sustained ‘V’-shaped recovery.”

More than half of the economy’s growth in August came from accommodation and food, where output surged by 71.4 percent thanks to the government’s one-month meals subsidies programme, more people taking holidays in the UK and the easing of lockdown restrictions.

Jobs plan

Kate Nicholls, head of the UK Hospitality trade body, said new COVID-19 restrictions introduced in September had weighed on the hospitality sector again.

The government is reportedly considering plans to close down pubs and restaurants in the worst-affected parts of the UK. Another nationwide shutdown of the sector could be very damaging to the British economy, analysts say.

“We reckon that a two-week closure of hospitality at a national level could drag monthly GDP lower by around 2-3 percent,” Dutch bank ING said in a research note sent to Al Jazeera. “That could rise to 5 percent if shops were also closed again (something that at the moment seems unlikely).”

Sunak’s new jobs plan would subsidise two-thirds of the wages of workers in pubs, restaurants and other businesses forced to close to slow the spread of the coronavirus, The Times newspaper reported.

His wage subsidy plan for workers across the economy expires at the end of this month and will be replaced by less generous support for employers, raising fears of a jump in job losses.

Friday’s data showed the economy – which shrank by more than any other Group of Seven nation in the April-June period – remained 9.2 percent smaller than its pre-pandemic level.

The huge services sector grew by 2.4 percent from July, half the pace expected by economists. Growth in the smaller manufacturing and construction sectors also fell short of forecasts.

Bank of England Governor Andrew Bailey said on Thursday that risks to the economy were “very much on the downside” and the central bank was ready to use its policy firepower.

Dean Turner, an economist at UBS Global Wealth Management, said recent surveys had pointed to the economy slowing in September which could be made worse by local COVID-19 restrictions on activity.

“Sluggish progress is likely to encourage the Bank of England to increase its bond-buying programme at its November meeting,” he said.

The UK is also facing the risk that it fails to secure a trade deal with the European Union with negotiations still continuing ahead of the December 31 expiry of the country’s post-Brexit transition period.