UK economy continues recovery in July

Pubs and restaurant activity rebounded by 140% in July

The UK economy grew by 6.6% in July, according to official figures, but remains far below pre-pandemic levels.

It is the third month in a row that the economy has expanded.

But the Office for National Statistics (ONS) said that the UK "has still only recovered just over half of the lost output caused by the coronavirus".

Hairdressers, pubs and restaurants contributed to growth after companies were allowed to reopen in July.

Is the UK economy back to pre-coronavirus levels?

Definitely not. The UK's economy - which is measured by the value and the volume of goods and services it produces - is still 11.7% smaller than it was in February, before lockdown was imposed.

Growth in July was also slower than the 8.7% expansion seen in June.

There are encouraging signs, however. Thomas Pugh, UK economist at Capital Economics, said the reopening of restaurants and pubs meant the accommodation and food services sector "rose by a whopping 140.8%" between June and July.

This had a knock-on effect for the alcohol industry which grew by 32.7%.

Keeping youngsters occupied while at home also continued to boost demand for toys and games, said the ONS, while holidaying in the UK supported campsites, cottages and caravan parks "because of a large increase in staycations".

However, activity in the accommodation and food services sector was still 60.1% below the level recorded in February.

And while Mr Pugh expects the Eat Out to Help Out scheme to provide a further boost in August, "now that most sectors in the economy are open again there is little scope for further large rises in monthly GDP".

Meanwhile, the car sector saw demand return to pre-pandemic levels.

"Car sales exceeded pre-crisis levels for the first time with showrooms having a particularly busy time," said Darren Morgan, director of economic statistics at the ONS.

Up, up, but not away. The UK economy continued a sharp recovery from lockdown in July, growing by a bumper 6.6% in the month. But the rate of recovery was a little slower than in June, raising some concerns about the ongoing strength of the bounce back.

The economy is still nearly 12% smaller than before the pandemic crisis, and has recovered just over half of the lost output during the shutdowns.

While the third quarter is on course to see a record number for growth and the official end of recession, fears remain that the recovery could peter out.

Business groups continue to push for extensions to government support packages that are due to close. The figures in July reflected the partial reopening of retail, manufacturing, and some public sector activities such as schools.

How long will recovery take?

Forecasts vary but the consensus is it won't be swift.

The UK fell into recession after activity shrank for the first and second quarters of this year after the government announced a lockdown to stop the spread of the coronavirus.

And in the three months to July, the economy shrank by 7.6%.

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Mr Pugh questioned how strong the UK's recovery would be throughout the rest of the year.

"Talk of tax rises at the next Budget, a further deterioration in the Brexit negotiations and a worrying rise in the number of virus cases and tighter social distancing restrictions will all conspire to slow the recovery even further," he said.

Hairdressers contributed to economic growth in July after being allowed to reopen

Dean Turner, economist at UBS Global Wealth Management, predicts that it will take until the end of 2021 before the UK recovers to pre-pandemic levels.

"Even with a managed exit from the Brexit transition agreement, it is unlikely that the lost output would be recovered before the end of next year," he said.

"The latest twist in negotiations raises the prospect that any recovery may take longer."

What risks lie ahead?

The number of coronavirus cases in the UK have begun rising again and social gatherings of more than six people will be illegal in England from Monday.

"The recovery likely will stall if, as looks likely, new Covid-19 infections continue to rise, keeping people working from home and avoiding consuming services that require close human contact," said Samuel Tombs chief UK economist, Pantheon Macroeconomics.

"Accordingly, we continue to expect GDP to be about 5% below its peak at the end of this year."

Meanwhile, the Coronavirus Job Retention Scheme is due to end on 31 October.

Chancellor Rishi Sunak has been emphatic that it will not continue. However, the Resolution Foundation think tank said he "needs to reconsider his plans to swiftly phase out support given that the economic crisis will be with us for some time to come".

Former prime minister and chancellor Gordon Brown, warned that ending the furlough scheme was a "cliff-edge" that could trigger "a tsunami of unemployment".

"The government's got to change course here," he told the BBC's Today programme.