The UK economy suffered a “significant loss in momentum” during August as it grew by just 2.1 per cent, failing to match consensus expectations of 6.6 per cent, the Office for National Statistics has revealed.
Economists had expected stronger growth in August as the government’s ‘Eat Out to Help Out’ scheme kicked in, encouraging consumers to support the hospitality sector.
While GDP was 21.7 per cent higher than its April 2020 low, it was 9.2 per cent below the levels seen in February 2020 before the full impact of the Covid-19 pandemic.
The accommodation and food services sub-sector contributed 1.25 percentage points to the overall figure, thanks to the ‘Eat Out to Help Out’ scheme and more staycations. There were also small contributions from construction and the education sectors.
On a three-month view, the UK economy grew by 8 per cent as lockdown conditions ended.
Azad Zangana (pictured), Schroders’ senior European economist and strategist, said the latest figures should ensure double-digit growth for the third quarter, but that August’s showing revealed “a significant loss in momentum”. 
He said: “Looking ahead, we are likely to see a pullback in activity for restaurants and bars as not only has the government discount scheme ended, but new restrictions have been introduced to limit activity after 10pm.
“Moreover, localised restrictions have been spreading across northern England, Wales and Scotland, with the latter closing pubs and bars for a temporary period to attempt to halt the spread of Covid-19.”
He continued: “Unlike March, the government’s strategy of localised restrictions coupled with track & trace rather than national lockdowns are clearly designed to help keep the economy from suffering a double-dip recession.
“The return of schools in September should lift activity in education – 5.7 per cent of GDP – and keeping workplaces open will help maintain some growth.”
However, he warned that the spread of the virus is likely to hit consumer confidence and could lead to slower growth.
Paul O’Connor, head of multi-asset at Janus Henderson Investors, agreed, adding that the UK’s coronavirus recovery was “rapidly losing momentum”.
“The recent rise in Covid-19 cases in the UK is certainly an important factor here,” he said. “The resurgence highlights the difficult trade-off that the government now has to make between the health impact of the pandemic and the economic cost of social restrictions.
“The government is reluctant to introduce another full-scale national lockdown, but further restrictions are undoubtedly imminent.
“While the focus for now is still on regional measures, if these fail to gain traction, the next step might involve a national ‘circuit breaker’, shutting pubs, bars and restaurants around the county for a few weeks.”
O’Connor said increased restrictions will impede economic activity, and spending in the retail, leisure and entertainment sectors will take another hit, while consumer confidence will likely fall as the furlough scheme ends and unemployment rises.
Neil Williams, senior economic adviser – international at Federated Hermes, said it would take longer for the UK to bounce back after the “eyewatering” drop in GDP during the second quarter of the year, which carved away 17 years of growth.
“This, plus the onset of further lockdowns, job uncertainties, and the move toward Brexit make an extended ‘W-shape’ recovery, rather than the ‘V’ the Bank of England and others crave, more likely,” he said. “So, another fiscal ‘jump-start’ and more QE may be needed this winter.”
The ongoing Brexit negotiations continue to overshadow the outlook for Q4 and next year, said O’Connor, but a deal is likely to be reached.
He said: “Despite the now-familiar theatrics, we still expect a deal to be scrambled together some time in the weeks ahead.
“However, any such last-minute deal is likely be narrow in scope, focusing largely on avoiding tariffs and quotas in manufacturing and with limited coverage of the service sector.
“That would amount to a fairly hard Brexit, constructive for neither UK growth nor global investor appetite for UK risk assets. A ‘no-deal’ exit would be even worse.”