Economic Perspectives –

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

The latest Perspective from Ruth Lea CBE, Economic Adviser to Arbuthnot Banking Group.


4th October 2021


Ruth Lea CBE


In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest economic developments:

  • 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%.

 Other news:

  • 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.

Ruth Lea said “Whilst the economy bounced back well in 2021Q2, there is mounting evidence that supply and labour shortages are now holding back the recovery, as articulated recently by the Bank Governor. It is, therefore, unsurprising that the Bank now believes that pre-pandemic GDP levels will not be attained until early in 2022, whereas they expected that such levels would be attained in 2021Q4 at the time of the August MPC meeting. In the meantime, the Bank continues to believe that higher inflationary pressures should prove transient. However, it is now clear that higher inflation is generally proving to be a more serious concern than was the case in spring and there remains the risk that it will become embedded.”





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Author -

Ruth Lea CBE

Ruth Lea CBE

Economic Adviser, Arbuthnot Banking Group

Ruth Lea CBE has been Arbuthnot Banking Group’s Economic Adviser since 2007 and was an Independent Non-Executive Director from 2005-2016.

Ruth co-founded Global Vision in 2007 and was Director until 2010, and was previously the Director of the Centre for Policy Studies (from 2004 to 2007), Head of the Policy Unit at the Institute of Directors (from 1995 to 2003) and Economics Editor at ITN (from 1994 to 1995).  Prior to ITN she was Chief UK Economist at Lehman Brothers, Chief Economist at Mitsubishi Bank, worked for 16 years in the Civil Service (the Treasury, the DTI, the Civil Service College and the Central Statistical Office) and was an economics lecturer at Thames Polytechnic (now the University of Greenwich).

She is the author of many papers and articles on economic issues and has been a Governor of the London School of Economics and Council Member of the University of London.

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