'Key sectors' in UK economy continue to struggle despite reopening recovery

UK economy picks up in August following drop, but uncertainty looms
Accommodation and food service activities, and arts, entertainment and recreation contributed most positively to services growth in August 2021. Photo: Belinda Jiao/SOPA Images/LightRocket via Getty

The UK's economy continued to grow in August, with a slight lag in construction being offset by strong growth in the recently-unlocked creative arts and entertainment industries.

Overall, gross domestic product (GDP) is estimated to have grown by 0.4% in August 2021 and remains 0.8% below its pre-COVID-19 pandemic level seen in February 2020, according to the ONS.

However, the ONS said that GDP growth for July 2021 has been revised from 0.1% growth to a 0.1% fall; mainly because of downwardly revised data for the manufacture of motor vehicles, oil and gas, and improvements to how health output is measured.

"The early indicators are pointing to growth stagnating again in September, we have pencilled in growth of 1.3% q/q in Q3, and there is a risk that growth in the fourth quarter is just 1.0% due to shortages of labour, materials and affordable energy. In that case, GDP may not get back its pre-crisis level until Q2 next year," said Thomas Pugh, economist at RSM UK.

Services output grew by 0.3% in August 2021, with output in consumer-facing services increasing by 1.2%, while all other services rose by 0.1%. All other services are now 0.4% above their pre-pandemic levels, while consumer-facing services remain 4.7% below.

Read more: Global supply chains and net zero to dominate G7 talks

Accommodation and food service activities, and arts, entertainment and recreation contributed most positively to services growth in August 2021, partially offset by falls in health output and retail trade.

"Key sectors of the economy are still struggling notably retail, construction (which has fallen for three of the last four months) and many sectors are being hit hard by supply chain issues," said Jonathan Gillham, chief economist at PwC.

"High gas prices are also damaging the economy and there are still issues relating to self isolation that are particularly affecting the parts of the economy that sell goods overseas. If the effects of inflation are stripped out the trade deficit worsened by £1.6bn over the last 3 months."

Creative, arts and entertainment activities grew by 24.7% in the first full month of coronavirus restrictions on social distancing being lifted in England, and later in Wales (from 7 August).

Meanwhile, production output increased by 0.8% in August 2021, mainly because of the continued increase in the extraction of crude petroleum and natural gas following the recent temporary closure of oil field production sites for planned maintenance, the ONS said.

Construction contracted, with output down by 0.2% in August 2021 — the sector is now 1.5% below its pre-pandemic level.

“The fact that consumer-facing services remain 5% below their peak suggests ample room for future catch-up in future," said Rory Macqueen, principal economist at NIESR.

Read more: Expectations grow of a UK interest rate hike before Christmas

"Elsewhere a further fall in construction output may have been down in part to a reported increase in input costs: something likely to affect the economy more broadly if shortages lead to more generalised price rises over the autumn.

"The coming months could see something of a two-speed recovery, with sectors most affected by shortages in decline while others continue to recover.”

“Our economic recovery is continuing with more employees on payrolls than ever before and the UK forecast to have the fastest growth in the G7 this year," said chancellor Rishi Sunak.

Watch: What is inflation and why is it important?