UK economy grows by 2.3% in April

Easing of lockdown restrictions helps the service sector grow by 3.4%

                                

The UK 's gross domestic product (GDP) grew by 2.3% in April 2021.

The UK's Office for National Statistics said that economic growth rose at its fastest rate since July 2020 thanks to the easing of COVID-19 government-imposed restrictions.

The service sector grew 3.4% as consumer-facing services re-opened.

Production shrank

It’s not all good news, however. Output in the production sector fell 1.3% in April 2021, the first fall since January 2021 as three of its four sectors contracted.

Breaking down the production figures, mining and quarrying output contracted sharply, by 15%. This was a result of planned temporary closures for the maintenance of oil field production sites.

The construction sector also contracted by 2.0% with new work slowing down faster than repair and maintenance.

April’s GDP remains 3.7% below the pre-pandemic levels seen in February 2020, however. It is now 1.2% above its initial peak in recovery in October 2020, when the figure was 2.5%.

Reopening schools helped

The ONS found that education output, which grew by 11.2% as more pupils returned to onsite lessons, was the second main driver of services growth in April 2021.

ONS deputy national statistician Jonathan Athow said a 9.2% surge in retail spending was the result of the re-opening of schools and hospitality outlets.

Speaking on Sky News, the UK’s Chancellor of the Exchequer, Rishi Sunak, welcomed the figures, saying: “With more than a million people coming off furlough across March and April and the number of employees in work rising, it is clear that our Plan for Jobs is working."

“But I know there are people who still need our support, which is why the furlough scheme is in place until September to protect as many jobs as possible, and schemes like Kickstart will continue to create jobs for young people, as we look to build the economy of the future.”

Economy returning to health

Hinesh Patel, portfolio manager at Quilter Investors told currency.com that UK consumers were "making up for lost time" and that the figures were only tip of the iceberg.

"Given this GDP reading covers April and doesn’t quite take into account all of the lockdown easing we have seen to date, the government will be pleased with the direction the economy is heading."

Patel claimed real-time data, including restaurant and holiday bookings, remains robust. "We are seeing discretionary spending hold up as things look to get back to normal. There is obviously uncertainty about the last step of easing going ahead on time and Sunak will not want any delay to be long lasting. But, given the depths of where we were last year, the economy is clearly returning to health. The removal of social distancing when the time comes will give an additional turbo charge to the economy."

Patel said markets had been expecting positive data, which also might feed inflation. “Much of this optimism though is fairly priced into markets, however, and the Bank of England won’t be able to sit on their hands if the economic recovery strengthens further. With inflation concerns persisting, although slightly overblown in our opinion, Bailey and co may need to act sooner than they may wish.

“That said, the economy will never return to how it was before. It has gone through structural changes never seen before on this scale and as such will still need to be nursed along as it returns to sustainable growth. But the point will come where the spending taps will need to be switched off and the economy left to stand on its own two feet again. When this is remains to be seen but for now the sun is shining and the roof is being fixed.”

Vaccination has made Britain stronger

Jesús Cabra Guisasola, associate at Validus Risk Management told currency.com: "The data confirms the British economy is firmly recovering after contracting the most since 1709 last year. There are no doubts that the UK has been one of the countries coming out in a better position from the pandemic after the success of its vaccination program. "

“However, there are reasons to be cautious as coronavirus cases continue rising, with the delta variant spreading rapidly. Prime Minister Boris Johnson and his government are now facing the dilemma of moving the country to the final stage of the reopening on the 21st of June. Moreover, the BoE will need to decide when the best moment is to start tightening its monetary policy as some members like Andy Haldane already voted to scale back the stimulus program during the last meeting.

“Nevertheless, there is optimism surrounding sterling in the coming months and any delay on the reopening would have a minimal impact on the recovery. Hence, we could see Sterling/US$USD closer to the 1.45-mark, a level not seen since early 2018.”

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