Arbuthnot Banking : GDP growth for 2021Q2 was revised up, but Bank Governor warns of a weakening recovery

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Date: 4^th October 2021

• GDP growth for 2021Q2 was revised up to 5.5% (QOQ, from 4.8%), but GDP was still 3.3% below pre-pandemic 2019Q4.
• Growth so far this year has outperformed the OBR's forecasts made in March 2021 for the Budget.
• The key driver of growth on the expenditure measure was household consumption, which rose 7.2% (QOQ), reflecting the easing of lockdown restrictions. The saving ratio fell to 11.7% (from 18.4% in 2021Q1) as consumption growth comfortably outstripped the change in household disposable incomes (which were flat).
• On the industry side, most of the growth came from the services sector, with consumer-facing services in particular benefitting from the easing of lockdown restrictions.
• The Bank Governor warned that the recovery was weakening in a speech to the Society of Professional Economists. In addition, he maintained that higher price pressures were, on the whole, transient.
• The Bank Governor reiterated his concerns over the recovery at the ECB's forum on central banking, warning that the economy may not recover its pre-pandemic level until early in 2022, up to two months later than anticipated at the August MPC meeting.
• Covid support schemes continue to be wound down. The furlough scheme ended at end-September, whilst the stamp duty holiday also ended at end-September.
• The current account deficit was £8.6bn in 2021Q2, little changed from 2021Q1's £8.9bn.
• The Bank reported that households borrowed just £0.4bn (net) of consumer credit in August, whilst mortgage borrowing was resumed in the month, after July's repayment. Approvals for house purchase ticked down further in August.
• Households continued to increase their money holdings in August.
• The SMMT reported that car production was down 27% (YOY) in August, affected by a shortage of semiconductors and summer factory shutdowns.
• The Nationwide reported that house prices rose by just 0.1% (MOM) in August, to be 10.0% higher YOY. The annual increase in July was 11.0%.

• The ONS reported recently that the number of EU nationals in the UK fell in 2020. The number peaked in 2017 at 3.8mn, slipping in 2018 to 3.6mn before partly recovering to 3.7mn in 2019. It was estimated to have declined to 3.5mn in 2020, probably in response to the pandemic as well as Brexit. By comparison, the number of non-EU nationals has been increasing fairly steadily, though modestly, since 2017 and was nearly 2.6mn in 2020.
• The September Global Financial Centres Index (GFCI) concluded that New York remained the top international financial centre with London remaining in second place. London remains "Europe's top financial centre", and by a considerable margin.