Consumption, spending, employment to drive Q4 GDP growth

HIGHLIGHTS

• UK GDP rose by 5.5% in Q2 2021, as per final reading
• The GDP stands 3.3% lower as against the pre-Covid period
• Spending, business orders & consumption are likely to guide Q4 GDP growth 

The gross domestic product (GDP) of the United Kingdom expanded by 5.5% in the second quarter of the present calendar year with the Office for National Statistics (ONS) revising the preliminary figures. This has been the second-highest growth rate for the national economy in the pandemic era as challenges continue to unfurl across the industries with the businesses struggling to combat the widened repercussions of slowdown and weak spending.

Going ahead in the October-December quarter of 2021, the household spending, business orders, consumption, demand for new cars and the relative employment activity is expected to guide the Q4 GDP growth as businesses are anticipating a sharp revival as Q4 2020 will be the first quarter with the most relaxed norms for the first time in pandemic era.

Nonetheless, the termination of the furlough scheme and withdrawal of stamp duty break will collectively affect the growth as some enterprises are still unable to carry forward the present strength of workforce due to minimal revenues.

The condition will worsen for them in the October-December if the footfalls and the subsequent spending remain sombre. A sharp drop in the employment levels will consequently affect the overall spending as the focus of middle-income earners will once again shift to fulfilling the essential requirements.

Though the industries are anticipating a worthwhile increase in the spending levels as employment activity will be supported by the record number of vacancies. Enterprises will also look forward to filling those vacant positions in order to resume their operations on a larger scale that can comprehensively guide them towards a sharp recovery.

Heightened spending, alongside gradually increasing numbers of total payrolled employees across the UK and the continuous demand for goods and services will help the national economy to surpass the pre-Covid levels by the end of March 2022.

Persistent troubles in Q3

The Downing Street administration has taken various precautionary measures that can help in considerable bounce back in the national economy. The planned relaxations by the government have substantially helped the sectors to recover with the constructions and manufacturing sector flourishing with orders.

However, the devastating aftereffects of the so-called ‘pingdemic’ derailed various activities, leading to a situation of acute shortage of staff across the businesses operating in various sectors. The manufacturing sector, especially the automakers were reeling under the immense pressure of inadequacy of semiconductors that have been an integral part of the vehicles.

The unforeseen consequences of ‘pingdemic’ have worsened the situation for many businesses from manufacturing-to-retailing-to-construction as there was an industry-wide limitedness of workforce. The aftermath of millions of pings turned out so bad for the businesses encountered a huge shortfall of people handling cargos, individuals responsible for transporting through HGV carriers, chefs at restaurants, pubs, breweries and other similar settings and workforce managing various tasks at other consumer-centric enterprises.

As a result of reduced staff, the businesses were forced to operate in a curtailed manner, thereby reducing the cumulative output. With the non-availability of HGV drivers, there has been a sharp dysfunction in the supply chain systems following which a large section of retailers across the UK, as well as the international outlets of domestic businesses in the adjacent nations including France, Germany have to operate with partly-filled shelves and empty baskets.

Q2 GDP growth snapshot

The April-June quarter of 2021 marked the beginning of phased easements announced by the government of the UK with the authorities extending the relaxations after monthly reviews of Covid activity across the nation, the status of vaccination, number of vulnerable patients, the rate of hospital admissions and prospective number of outbreaks.

The business sentiments have considerably improved in the corresponding period as some of the enterprises were able to resume their operations at a larger scale, while few were obligated to operate partly due to the limit on number of visitors and footfalls. Following the cumulative growth in the respective sectors including manufacturing, construction and services, the ONS has done an upward revision in the GDP growth rate to 5.5% as compared to the initial estimate of 4.8%.

With the persistent levels of the national economy, the GDP of the UK stands 3.3% lower as against the pre-Covid period, the October-December stretch of 2019.

As far as the biggest growth contributors to the GDP are concerned, accommodation and food & beverage services, wholesale and retail trade, alongside social work activities, education and human health services remained the major drivers for the national economy in the second quarter.

All the major components of expenditure supported the GDP growth in the reporting quarter with household consumption emerging as the biggest contributor, effectively adding 4 percentage points to the 5.5% increase in the Q2 of 2021.

According to the official figures released by the ONS, household spending grew by 7.2% in the April-June period of 2021 as compared to the net spending in January-March quarter of the current year. Interestingly, the total household spending jumped by 20.7% as against the total spending recognised during the April-June quarter of 2020, the period of first national lockdown that brought all the commercial activities to a standstill.

On a sequential basis, the largest contributors to the household spending surge was realised from the spending linked to restaurants and hotels as it increased 60.9% following the massive reopening of sectors as per the ambitious exit roadmap laid out by the government.

In the present calendar year, April was the first month when the government started to alleviate the restrictions that allowed the hotels and restaurants to partly operate with a higher number after the completion of third national lockdown, which was desperately perpetrated to contain the widespread rise of Covid cases and outbreak of new variants of coronavirus.

The household spending on restaurants and hotels advanced by 317.6% in the Q2 2021 as compared to the total spending done in the similar period of the previous year.