UK Edition
The economy’s recovery stumbled in August even as Rishi Sunak’s dining discount provided much-needed relief for restaurants.
Hopes of a rapid V-shaped recovery were dashed by GDP rising by a far weaker-than-expected 2.1pc compared with July, a fourth month of expansion following the record collapse during lockdown, according to the Office for National Statistics.
The accommodation and food services sector contributed about 60pc of growth in August, buoyed by the Chancellor's Eat Out to Help Out scheme and the staycation boom. More than 100m meals were served using the discount, which provided up to £10 off for every diner on Monday, Tuesday and Wednesday in August at a cost of £522m.
However, the growth data revealed that other industries and the wider economy lost momentum even before new Covid restrictions were introduced. Economists warned the economy could see no growth in September, describing the outlook as "bleak" ahead of a long winter for businesses and workers.
The economy is still almost a tenth smaller than its pre-virus levels and the outlook has darkened considerably in recent weeks as a second wave strikes the UK and local restrictions tighten.
August's rise in GDP marked a sharp slowdown from the 6.4pc expansion recorded in July and was well below economists' estimates of a 4.6pc rise.
The economy is "struggling to generate growth" now the "mechanical" gains from the reopening were done, said Robert Wood, economist at Bank of America.
"It's actually worse than the headline as hospitality contributed two-thirds of services growth on the temporary boost from Eat Out to Help Out discounts."
The services industry drove August's expansion, growing 2.4pc month-on-month, but the hospitality sector was likely to be worst affected by the new Covid rules, such as the 10pm curfew on pubs and temporary closures.
A strong pick-up in the rest of the economy is also unlikely after a lacklustre August. Factories struggled to continue their rebound with monthly production growth of just 0.3pc, while the construction industry also saw a sharp deceleration. Its output rose by 3pc, down from 17.2pc the previous month.
The economy's struggles in August set up a gloomy end to the year as a perfect storm of risks threaten to send the recovery into reverse.
Job losses are expected to mount, the return of Covid has rocked brittle consumer confidence, swathes of the country are back under partial lockdowns and the Brexit deadlock could increase the uncertainty facing businesses.
The National Institute Of Economic and Social Research now expects zero growth in September and output to be 8.5pc below 2019 levels by the end of this year.
The risks for the economy piling up means the UK will see "a significantly slower pace of recovery in the fourth quarter of 2020", it warned.
"The path ahead looks bleak," warned Allan Monks, UK economist at JPMorgan. "The latest activity indicators have weakened, and the fourth quarter will bring the combination of new restrictions, a spike in job losses and a limited-scope Brexit deal."
He said the pressure was now on the Bank of England to significantly revise its optimistic outlook for the economy and stump up more stimulus.
"Disappointing growth figures for August confirm that Britain was never on course for a V-shaped recovery," warned James Smith, research director at the Resolution Foundation.
He said the extra economic support and local furlough scheme expected to be announced by the Chancellor would be "too late for many firms and workers".
"Much more effort over the summer should have gone into planning for a second wave, rather than pinning hopes on a V."
The ONS figures revealed that the travel and entertainment industries were still the biggest victims from the pandemic, with output well below February's levels.
Tour operators and air transport were operating at more than 80pc below their pre-virus level, with rail transport and movie and TV production among the other hardest-hit services industries.
Postal and courier services have enjoyed the strongest growth after the shift towards e-commerce accelerated during lockdown.