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UK economic recovery slows despite increased business output for third consecutive month

Lucy Harley-McKeown
·2-min read
Digital generated image of financial line chart showing fallings because of coronavirus COVID-19 on blue background.
There has been a marked downturn in the rate of recovery for output. Photo: Getty

Business output across the UK increased for a third consecutive month in July as the services sector benefited from the continued lifting of lockdown restrictions.

Despite this bright spot in data, the pace of recovery has started to wane, according to figures from the latest BDO Business Trends report.

BDO’s Output Index, which provides the most comprehensive snapshot of output in the manufacturing and services sectors by weighting macroeconomic data from the UK’s main business surveys, rose by 6.70 points to 73.20 in July.

This is nearly half the amount it rose in June, when it increased by 11.16 points. This suggests the rate of economic recovery is beginning to slow.

“The latest data suggests we might be approaching a plateau in our economic recovery. While the reopening of the hospitality sector has provided a much-needed uplift, the ongoing capacity restraints caused by social distancing, as well as pressures on UK manufacturers imposed by weakened overseas demand, means this growth is likely to continue to slow,” said Kaley Crossthwaite, partner at BDO.

“Support from the Coronavirus Job Retention Scheme has successfully insulated millions of workers from the worst impact of the economic downturn. But with this government support beginning to taper, it remains to be seen how resilient the jobs market can continue to be.”

The index also remains considerably short of the 95-point level which represents an annual expansion in output.

BDO’s Services Output Index - which encompasses a range of industries including retail, hospitality, and transport - rose by 6.81 points to 71.54 points in July. This followed new government guidance at the start of the month allowing pubs, restaurants, and cafes to reopen, leading consumers back to the high street.

Meanwhile, BDO’s Manufacturing Output Index recorded a more muted rise of 5.81 points in July, a marked downturn in the rate of recovery, which increased at almost twice the pace (10.92 points) in June. The manufacturing sector’s reliance on international exports means it has been adversely affected by the rising numbers of coronavirus cases seen across the world.

Alongside these developments, BDO Employment Index fell for the fifth consecutive month, sliding 0.66 points to its lowest level since November 2016.

This relatively steady and small rate of decline suggests that government support has been broadly successful in retaining jobs so far.