Caution urged as GDP surges by 4.8%

Caution urged as GDP surges by 4.8%

The UK economy grew by 4.8 per cent in the second quarter of 2021 as Covid-19 restrictions were loosened - but investors have been warned that much uncertainty remains.

Indeed the level of UK GDP remains 4.4 per cent below where it was before the coronavirus pandemic at the end of 2019.

Growth of 4.8 per cent in the second quarter of 2021 came after the UK economy shrank by 1.6 per cent in the first quarter of the year and grew by only 1.3 per cent in the final quarter of 2020.

Paul Craig, portfolio manager at Quilter Investors, said there was reason for optimism since the latest figures did not take into account the effect of "freedom day" - or the full release of all Covid-19 restrictions last month - but he said there was plenty of uncertainty.

He said: "Supply chains remain disrupted and the global semiconductor shortage weighed on vehicle production in the UK during Q2. In addition, the depth of the scarring is still yet to show itself, while the winding down of the furlough scheme will give us a better idea of how the economy has shifted in the past 18 months.

"Furthermore, inflation remains a concern and if economic growth is sustained there will be increasingly louder calls for the Bank of England to act."

There has been concern the UK's recovery will be stunted by the spread of the Delta variant and the so-called "pingdemic" - with large numbers having to self-isolate because of the contact tracing app, thereby unable to spend or forcing businesses to close temporarily.

Robert Alster, chief investment officer at Close Brothers Asset Management, said: "A smooth journey is contingent on us not facing another wave of Covid which increases hospitalisations and cripples the NHS, as well as a relatively supressed ‘pingdemic’ to ensure businesses can stay open and meet the thriving consumer demand.

"There is optimism around the UK’s economic growth, with a forecast of returning to pre-pandemic GDP levels by 2023. But that means dealing with up to three years of a stunted economy, and the long term consequences of both Brexit and the economic wound inflicted by the pandemic are unknown."

According to the Office for National Statistics, UK GDP increased across all three months of the quarter at 2.2 per cent in April, 0.6 per cent in May and 1 per cent in June.

Maike Currie, investment director at Fidelity International, said: "Economic output for June increased only marginally from May’s figures at 1 per cent, and we are yet to see GDP growth recover to pre-March 2020 levels. The fact that we are not there yet is reflective of the long road still ahead - perhaps we are seeing the first signs of the so-called ‘90 per cent economy’ - an economy that will be far smaller in future, than it would have been without Covid-19."