This morning UK GDP figures came out better than expected for the second quarter, rising 5.5% versus a forecasted 4.8%, leaving the UK’s GDP just 3.3% below pre-pandemic levels, revised down from the 4.4% previous estimate. GDP growth in the year to Q2 was 23.6%, which again is higher than the 22.2% prediction. The Office for National Statistics (ONS) said the main contributions to the better numbers were ‘wholesale and retail trade, accommodation and food service activities, education and human health, and social work activities’.
However, with the ending of the furlough scheme today in the UK, there is uncertainty over the almost one million people still thought to be on the programme. The government has spent around GBP70bn to support the incomes of over 11.5m jobs over the past 18 months, and it is hoped that a record stock of more than a million job vacancies will absorb workers coming off furlough. The difference between industries relying on the furlough scheme is stark. Over 50% of all air passenger transport workers in the UK were still on furlough at the end of July, by far the highest of any industry. About a quarter of travel agents and tour operators were in the same position, against an average of 5% of workers across all sectors.
We also saw that China’s September purchasing managers’ index (PMI) fell to its lowest level since the coronavirus outbreak, falling to 49.6 against a surveyed 50, also down from 50.1 in August. The contraction was due to ‘low sentiment of high energy-consuming industries’. Other factors that did not help the numbers were rising raw materials costs, and recent power outages in many Chinese cities.
The disappointing PMI number comes on the back of Goldman Sachs cutting their forecast for China growth this year from 8.2% to a (mere) 7.8%, reasoning that ‘A relatively new, but tightening, constraint on growth comes from increased regulatory pressure to meet environmental targets for energy consumption and energy intensity’. This comes on the back of other Investment houses, Citi, Nomura and JP Morgan as well as Fitch also reducing their 2021 growth forecasts to the world’s second largest economy.