Finance

UK economy grows at fastest rate since last July

The UK economy grew 2.3% in April, marking its fastest growth rate since July last year as shoppers returned to optimism and lockdown restrictions eased.

Data from the Office for National Statistics on 11 June showed growth between March 2021 and April 2021 was still 3.7% below the pre-pandemic level recorded in February last year.

The ONS said the rise in GDP was led by a 3.4% month-on-month bounce for services, though the sector also remained 4.1% below its pre-pandemic benchmark.

Services growth was led by the wholesale and retail sectors, with strong growth also being recorded in accommodation, pubs, restaurants and hairdressers. Education similarly bounced 11.2%, thanks to April being the first full month since schools reopened to all pupils.

The government lifted restrictions on all retail, self-contained accommodation, bars and restaurants on 12 April, though some locations were still required to only operate outdoor services.

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Meanwhile, a 1.3% drop in growth for production came as the sector recorded its lowest output since records began in January 1997.

“Widespread anecdotal evidence was received from businesses that the closure of the Suez Canal had led to difficulties in exporting and importing, which may also have been a contributing factor to the fall in monthly production,” the ONS added.

The Suez Canal was closed at the end of March for six days, as local authorities battled to free a large container ship that had got stuck on the waterway.

Prior to the 11 June data, Bank of England chief economist Andy Haldane told radio station LBC that the UK economy had been going “gangbusters”, with the central bank exploring the possibility of easing liquidity support in the near future.

HSBC’s UK chief investment officer for private banking and wealth management Jonathan Sparks said cyclical companies are now in a strong position to capitalise on the economic turnaround, with “a lot of positives for the UK equity market” ahead.

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“We’ve grown accustomed to erratic GDP figures since the pandemic, but today’s data confirms that the UK reached a turning point in April, when the re-opening of non-essential retail and easing of hospitality restrictions boosted spending,” Sparks said.

“Consumer confidence has surged higher in recent months as the re-opening continues, which bodes well for more domestically focused companies.”

Cars and motor vehicles saw a major bounce during the period, the ONS said, as showrooms reopened and sales spiked. More than 30 times as many cars were sold in April than in the same month last year, with electric vehicles taking a “significantly higher market share”.

“Given the depths of where we were last year, the economy is clearly returning to health,” said Hinesh Patel, portfolio manager at Quilter Investors.

“Much of this optimism though is fairly priced into markets, however, and the Bank of England won’t be able to sit on their hands if the economic recovery strengthens further. With inflation concerns persisting, although slightly overblown in our opinion, Bailey and company may need to act sooner than they may wish.”

To contact the author of this story with feedback or news, email Emily Nicolle

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