Summer slump for UK GDP and IMF warning put economy on the backfoot

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Eck growth numbers and warnings from the International Monetary Fund (IMF) are adding to the headache in Downing Street and the Bank of England about the health of the UK economy.

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The UK economy grew just 0.4% in August, the latest data from the Office for National Statistics showed. While there had been an improvement in the previous month, it was 0.5% weaker than economists had expected.

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The ONS also revised its numbers for July, saying it now believes the UK economy has contracted slightly rather than growing. “Pingdemic”, which forced many to stay home, was blamed for the meltdown.

The UK economy remains 0.8% smaller than it was before the pandemic and is struggling to return to its pre-Covid situation.

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“Key sectors of the economy still struggling, especially retail” [and] Construction, and many sectors are being hit hard by supply chain issues,” said Jonathan Gilham, chief economist at PwC. “High gas prices are also hurting the economy and there are still issues related to self-isolation that are particularly affecting those parts of the economy that sell goods overseas.”

The downbeat data comes a day after the IMF downgraded its growth forecast for the UK in line with worsening conditions around the world. The IMF now expects the UK to grow at 6.8 per cent this year, compared to 7% earlier.

The international body asked global leaders to remain hyper-vigilant about the rising risk of persistent inflation across the globe. Inflation, and subsequent interest rate hikes to contain it, could further derail growth and make it even more difficult for the UK to return to its previous growth trajectory.

“Acute labor shortages are being reported,” Gilham said. “With the specter of permanent rather than temporary inflation, there are mounting risks that could jeopardize the pace at which the UK economy can recover from the COVID crisis.”

Susannah Streeter at Hargreaves Lansdowne said: “It will not be an easy ride for policymakers at the Bank of England when they next meet to decide on raising interest rates. Moving too fast could turn the economy upside down. But the bank will not want to risk losing its credibility if prices continue to rise.”

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