11:52 AM 13th October 2021
No Need For Further Tax Rises After Promising GDP Figures
Image by Mary Pahlke from Pixabay
Commenting on the latest GDP figures, published by the ONS today, Julian Jessop, Economics Fellow at free market think tank the Institute of Economic Affairs, said
"The growth of 0.4 per cent in the UK economy in August may not sound like much but, when combined with revisions to previous data, it means that GDP was only 0.8 per cent below where it was in February 2020.
"Output therefore remains on track to return to its pre-Covid level within a few months, which would be much sooner than most had expected at the start of the year. Indeed, payroll employment is already higher than it was before the pandemic.
"The rebound in economic activity will help to repair the public finances without the need for any more tax increases, but also makes it increasingly hard to justify keeping interest rates at the emergency low of 0.1 per cent.
"With labour shortages and rising prices now the biggest threat, the focus needs to shift to tackling problems on the supply side. The emphasis should be on letting markets work properly, rather than further state intervention and pumping even more money into the economy."
For the British Chambers of Commerce (BCC), William Bain, Head of Trade Policy, said: “UK exports and imports both fell in August 2021, due mainly to fluctuations in the markets for mechanical power generators, road vehicles and crude oil.
“It is of concern that the overall trade deficit rose in the three months to August 2021. There are some signs that in the last three months exports to the EU have picked up somewhat but are still £1.8bn less than the same period 3 years ago before Brexit deadlines, the end of the transition period and the pandemic. Imports from the EU were £2.5bn lower in August 2021 than 3 years earlier.
“Labour shortages across the economy, in particular HGV drivers, are identified as a factor in relatively weak imports and exports performance. This further makes the case for Government’s new supply chain task force to find solutions to these issues affecting the UK economy.
“Businesses are also becoming increasingly worried about further disruption to trading terms. Concerns are rising about tariffs or loss of trade facilitation measures if there is a major deterioration in EU-UK relationship over the next year. This would knock down a still fragile set of import and export data on EU-UK trade.”
Claire Walker, Co-Executive Director at the British Chambers of Commerce (BCC), said: “Today’s data paints a picture of a slow-down in the UK’s economic recovery after a very strong second quarter.
“GDP remains some way off pre-pandemic levels and there are clear indications that the economic headwinds caused by labour shortages and supply chain disruption are beginning to bite.
“While some sectors such as arts, accommodation and hospitality, which opened later in the roadmap, have done well other consumer-based services have seen relatively low growth.
“Other sectors, such as construction, have seen a contraction which is very likely down to the issues of shortages of both people and materials.
“It is also troubling that the revised GDP data for July is now showing a fall of 0.1% having initially been 0.1% growth.
“Overall, these are challenging figures for government and show why the new supply chain task force matters so much.
“The increasing pressure that businesses, particularly SMEs, are facing around supply chain costs and disruption, labour shortages, price rises, soaring energy bills and taxes is stifling the recovery.
“The focus of October’s budget must now be on creating the best possible environment for businesses to grow and thrive. There must be no further up-front costs piled on business, including a commitment not to raise business rates in the coming year. Government must look to support firms through the difficult months ahead so they can secure the long-term recovery.”
aLSO Commenting on ONS data that shows GDP rising by 0.4% in August 2021 to 0.8% below its pre-pandemic level, Kitty Ussher, Chief Economist at the Institute of Directors said: “August was a strong month for the UK economy, with the easing of restrictions and staycation boom causing a welcome growth in the service sector when compared with the previous month. Retail sales, however, were more muted but this could have been due to a higher proportion of disposable income being spent instead on going out over the summer.
“While the construction sector appears to have been affected by supply shortages, elsewhere in the economy there are signs that previous bottlenecks are able to self-correct to a certain extent. For example, the manufacturing sector had a strong month driven by a recovery in the production of motor vehicles as the global shortage in microchips begins to ease.
“We expect greater uncertainty into the autumn as supply shortages dampen confidence, however this will be offset by the positive effects of the full reopening of the education sector.”