Caution remains as GDP growth remains slow

No easy ride on interest rates

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, said it was likely the 0.4 per cent growth in economic output overall in August was partly due to the mini bounce back from the pandemic which pushed a million people into self isolation in July.

“Weakness is seeping through these figures especially in the construction sector which shrank again for the fourth month in a row, by 0.2 per cent,” she said. “Widespread reports of raw material shortages is likely to have been partly to blame, as well as the difficulties of getting boots on the ground in building sites as sectors fight for skills, with 1.1 million vacancies opening up between July and September.”

She said output remained below pre-pandemic levels in August, and the price rises, fuel shortages and labour shortages are “potholes in the road” which are likely to have put a brake on growth in September.

“It certainly won’t be an easy ride for Bank of England policy makers when they meet next to decide when to raise interest rates,” she added.

“Moving too sharply could see the economy go into reverse, but the Bank won’t want to risk losing credibility if prices keep accelerating.’’

Meanwhile, Derrick Dunne, chief executive of YOU Asset Management, said the figures make it tempting to think that growth may be back on an upward trajectory, “but investors should be taking today’s figures with a pinch of salt.”

He said: “Sectors like accommodation, food services and entertainment fared the best as infection rates fell and people rushed to socialise with family and friends, however the current picture is somewhat less rosy. The UK is faced with a supply chain crunch, rising prices and labour shortages, all of which could create a drag on GDP growth as we move towards the usually busy festive period.

“While the outlook for the economy remains broadly positive, investors would do well to review their strategy and ensure its equipped to withstand a more drawn out recovery.”

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