UK recovery to ‘remain bumpy’: Industry reacts to 0.1% GDP increase

The figures from the Office for National Statistics came in well below forecasts of 0.5%, and mean the three-month over three-month rate of growth came in at 3.6%, compared to June’s rate of 4.8%.

Production output was the biggest positive contributor to the UK economy, having grown by 1.2% following the reopening of an oil field production site. The construction sector contracted for the fourth consecutive month, following price increases caused by difficulties sourcing the likes of steel, concrete, timber and glass.

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Overall, the UK economy remains 2% below pre-pandemic levels.

Emma Mogford, manager of the Premier Miton Monthly Income fund, said growth in the UK has slowed as the country adjusts to a “new post-lockdown normal”.

“The key question will be how the recent income tax hike will impact growth in the future,” she said. “This week the market voted that the impact would be negative, as the share price of economically sensitive companies such as house-builders fell.”

Hussain Mehdi, macro and investment strategist at HSBC Asset Management, said the UK’s recovery is “likely to remain bumpy” amid ongoing supply-side constraints, the ending of the UK Government’s furlough programme, the potential for a Covid resurgence and “greater voluntary social distancing as we head into winter”.

“What is positive, however, is that staff shortages should now ease after the relaxation of self-isolation rules,” he explained. “And hospitalisation rates and the risk of government restrictions should remain limited by the UK’s high vaccination rate and the rollout of booster jabs.

“Overall, we think the UK economy should return to pre-pandemic levels of economic activity by Christmas.”

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Paul Craig, portfolio manager at Quilter Investors, called the latest ONS figures “disappointing” – especially given July’s statistics include ‘freedom day’ – and agreed figures will “look a bit bumpy” for the UK given the shortage of HGV drivers and supply chain issues.

“Inflation remains a concern and this could be enough to spook Andrew Bailey and the MPC into not joining the ECB and withholding its tapering plans,” he reasoned.

“These environments are ones in which quality businesses can thrive, however. Those with pricing advantages and strong competitive positions will benefit from an uptick in inflation, while those with established and resilient supply chains should overcome the current issues.

“Investors will want to pay attention to these businesses as the recovery plays out as that is ultimately where the value will lie.”

Sam Pham, investment strategist at Tilney Smith & Williamson, accredits the lacklustre growth figures to a fade in the boost given from reopening businesses.

It is important to note that while the growth rate appears peaking, supply disruptions actually accelerated,” he pointed out. “European and US firms still find it hard to fill job openings, while global freight cost, tracked by the Freightos Baltic index, have increased three times this year to more than $10,000 per 40-foot container.

“More persistent-than-expected inflation could eventually hamper growth, and lead to the so-called stagflation. We are watching this growth/inflation mix closely.”

That being said, Pham still prefers equities over bonds based on earnings delivery and profit margins.

“We also recommend gold as a hedge to stagflation risks, as this asset benefits from lower real yields and higher inflation,” he added.

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