UK economy rebounded more than expected in second quarter but clouds loom

Britain’s economy performed better than previously thought in the second quarter, as households spent more and saved less as a result of easing lockdown restrictions, official data showed Thursday.

Gross domestic product in the three months to June grew by 5.5 percent, up sharply from the previous estimate of 4.8 percent, the Office for National Statistics said in a statement which also cited accounting changes.

The economy has slowed since then, however, with the Bank of England warning that the recovery is flattening as a result of ongoing pandemic fallout and global supply chain bottlenecks.

The outlook also darkens Thursday with the end of the UK government’s costly furlough scheme, which kept millions in their jobs during the pandemic. 

It spent almost £70 billion ($96 billion, 82 billion euros) on paying the bulk of wages for millions of staff stuck at home during the pandemic.

Consumers and businesses also have to contend with runaway gas prices and a chronic shortage of lorry drivers that helped spark a run on motor fuel last week.

“While the upward revisions to GDP are clearly welcome, the second quarter was three months ago, and the recovery appears to have stagnated since,” said Ruth Gregory, senior economist at research consultancy Capital Economics.

The biggest driver of the large upward revision in the second quarter was household expenditure.

The ONS also revealed the economy shrank by 1.4 percent in the first quarter.

He noted the latest data showed health services and the arts performing better than previously thought.

“The revised figures show households have been saving less in recent years than previously thought,” ONS statistician Jonathan Athow.

“Household saving fell particularly strongly in the latest quarter from the record highs seen during the pandemic, as many people were again able to spend on shopping, eating out and driving their cars.”

The ONS said GDP was 3.3 percent below where it was in the final quarter of 2019 before the pandemic struck.

The strong second-quarter recovery was fuelled by consumer spending, while the government continued to provide massive financial support by paying the bulk of private sector wages.

But the economy has lost steam since then, growing by just 0.1 percent in July.

Commentators fear the end of furlough will spark a spike in unemployment and a slump in living standards.