UK Economy Forecast to Have Grown 7% in July
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The UK economy is estimated to have grown 7% in July by economists at Deutsche Bank, which means the economy will have recovered about 88% of its pre-lockdown size.
The call comes ahead of the release of GDP data by the ONS on Friday which will give markets a sense of just how robust the UK's economic recovery is.
The market is expecting a figure of 6.7% to be reported.
"After June GDP outperformed market (and our own) expectations, we expect UK growth to continue its recent surge," says Sanjay Raja, Economist at Deutsche Bank. "Risks to our forecast are finely balanced, if slightly tilted to the upside."
GDP statistics from the ONS showed the economy shrank 20.4% on a quarterly basis in the second quarter, which makes for two consecutive quarters of decline which is the standard economic condition for a recession to be declared.
The annual GDP rate stood at -21.7% for the second quarter, which was slightly better than the -22.4% analysts had forecast the ONS to report. The numbers mean the UK was one of the hardest hit developed economies, with only Spain suffering a greater loss of value.
Explaining the above-consensus forecast for the July GDP release, Raja says: "the UK is still firmly in the 'easy' part of the recovery phase. Indeed, after UK output collapsed by more than any other major economy, there's plenty of catch-up growth still left to make up. July data - we think - will largely reflect this. The rise in activity will be merely mechanical as more firms resume trading, social restrictions lift, and more furloughed employees return to work."
Looking at the sub-components of the economy, Deutsche Bank expects services output to rise by 6.5% month on month. Manufacturing is expected to have expanded 5% month on month and energy 4% month on month.
Construction activity is expect to put in a double digit rise in output, with activity up 14.4% month on month.
Looking beyond July, Deutsche Bank says the recovery should start to slow with the big initial post lockdown jumps having been largely absorbed by the data.
"After July, we expect the economy's road back to its pre-virus level of output to become more difficult," says Raja. "Yes, growth will likely remain elevated (relative to historical standards), but the pace of monthly GDP rises will slow dramatically beyond July."
A rise in unemployment due to the Government's ending its jobs support scheme "remains inevitable" with Deutsche Bank forecasting nearly 2.5m people to enter unemployment over the next six to nine months.
"Furthermore, rising Brexit uncertainty will also dampen activity in the near term, specifically investment spending. While we expect the UK and EU to eventually agree on some sort of skinny FTA, risks of a no-deal Brexit remain uncomfortably high," adds Raja.
