UK economic growth slows in August despite 'eat out to help out'

Britain’s economic recovery from the coronavirus pandemic slowed in August despite the government’s eat out to help out scheme fuelling a rise in consumer spending.

The Office for National Statistics (ONS) said gross domestic product rose by 2.1% in August compared with the previous month, falling short of expectations among City economists for a monthly growth rate of 4.6%.

Related: UK economic recovery slowed to 2.1% in August – business live

It followed growth of 6.4% in July – revised down from 6.6% – 9.1% in June and 2.7% in May.

Continuing a fightback from the deepest recession in history as Britons increased their spending in hotels, cafes, restaurants and pubs, the latest snapshot comes as concerns mount over the strength of the UK’s economic fightback as the second wave of coronavirus infections spreads and the government imposes tough new restrictions on business and social life.

After staging a rapid recovery in recent months, GDP is 21.7% higher than its lowest ebb during lockdown in April, when the economy contracted by 19.5%. However, it remains 9.2% below pre-pandemic levels and could take years to recover while the virus and efforts to contain its spread continue to drag down activity.

The ONS said more than half of growth in August was fuelled by the sector of the economy that includes hotels and restaurants, as the combined impact of lockdown measures being relaxed, the eat out to help out scheme and more people taking holidays in Britain boosted consumer demand.

Highlighting the impact of “staycations” as international travel restrictions provided a shot in the arm for domestic tourism, the ONS said growth in the accommodation industry leapt by 76% on the month.

However, activity across the services sector as a whole remains about a tenth below the level in February as the impact of the pandemic continues to weigh down Britain’s economic recovery.

The ONS said the production sector of the economy – which includes energy, mining and manufacturing – grew by 0.3% on the month, while the construction industry grew by 3%. However, both sectors still remain below pre-pandemic levels.

Responding to the figures, the chancellor, Rishi Sunak, said: “Today’s figures show our economy has grown for four consecutive months but I know that many people are worried about the coming winter months.

“Throughout this crisis, my single focus has been jobs – protecting as many jobs as possible and providing support for people to find other opportunities where this isn’t possible. This goal remains unchanged.

“That’s why we’re investing billions to help people back to work and provide fresh opportunities to those that have sadly lost their jobs, so that nobody is left without hope.”

Sunak is expected to announce additional support for jobs and businesses on Friday afternoon as the government imposes localised lockdown restrictions after pressure on ministers to act. A spokeswoman for the Treasury said: “The chancellor will be setting out the next stage of the job support scheme later today that will protect jobs and provide a safety net for those businesses that may have to close in the coming weeks and months.”

Analysts expect the UK economy to struggle for growth in the months ahead amid the second Covid-19 wave and as the government scales back its support for jobs by closing the furlough scheme and replacing it with a less expensive job support programme.

Ruth Gregory, the senior UK economist at the consultancy Capital Economics, said it could take until late 2022 for a return to pre-pandemic levels of GDP. “We expect the new Covid-19 restrictions to mean that the economy does little more than move sideways in the final three months of the year, leaving economic activity marooned 7.5% short of its pre-crisis level,” she said.