# UK economy picks up in August, underpinning BoE rate hike bets Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2021-10-13 Category: NEWS Category URL: https://financedigest.com/category/news Meta Title: UK Economy Returns to Growth in August - BoE May Raise Rates Meta Description: Britain's economy grew by 0.4% in August, signalling recovery post-COVID restrictions and fueling expectations of a Bank of England interest rate increase URL: https://financedigest.com/uk-economy-picks-up-in-august-underpinning-boe-rate-hike-betshtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2021-10-13t061757z2lynxmpeh9c06rrtroptp4britain-finance-office-1736837571684-compressed.jpg) By David Milliken and William Schomberg LONDON (Reuters) -Britain’s economy returned to growth in August after contracting for the first time in six months in July, keeping intact financial market bets that the Bank of England will begin raising interest rates before the end of the year. Gross domestic product grew by 0.4% in August – a shade under market expectations in a Reuters poll of economists – after it was revised down to show a drop of 0.1% in July when staff absences linked to the Delta variant of COVID-19 peaked. The [economy picked up in August](https://www.financedigest.com/uk-economy-on-brink-of-recession-as-it-shrinks-in-august.html "UK economy on brink of recession as it shrinks in August") as bars, restaurants and festivals benefited from the first full month without COVID-19 restrictions in England,” Darren Morgan, director of economic statistics at the Office for National Statistics, said. Financial markets were [little changed after the data](https://www.financedigest.com/stocks-dollar-little-changed-as-inflation-data-sends-mixed-signals.html "Stocks, dollar little changed as inflation data sends mixed signals"), which showed a mixed picture on the impact of supply chain difficulties that have pushed up inflation and hurt growth. The BoE, facing a jump in inflation, looks set to be the first major [central bank to raise interest rates](https://www.financedigest.com/central-banks-keep-hiking-rates-amid-banking-turmoil.html "Central banks keep hiking rates amid banking turmoil") since the start of the pandemic. [Investors are betting on a rise to 0.25% by the end](https://www.financedigest.com/boe-raises-rates-again-as-investors-look-towards-end-of-hikes.html "BoE raises rates again as investors look towards end of hikes") of December, up from its all-time low of 0.1%. After the latest official data, Britain’s [economy is now within 0.8% of its pre-pandemic size – a much smaller](https://www.financedigest.com/uk-economy-set-for-smaller-hit-in-2023-than-previously-feared-imf.html "UK economy set for smaller hit in 2023 than previously feared – IMF") gap than when the last monthly figures were released thanks to upward revisions to output growth earlier in the year. Britain’s [economy shrank by 9.7% in 2020, its joint-biggest drop in 300 years and matching the annual decline in 1921, when the economy was still reeling from the cost of World](https://www.financedigest.com/at-chinas-largest-trade-fair-exporters-worry-about-world-economy.html "At China’s largest trade fair, exporters worry about world economy") War One. The International Monetary Fund forecast on Tuesday that Britain was on track to have the fastest expansion of any country in the G7 group of rich nations, growing by 6.8% this year, although the outsize scale of [last year’s slump means it will still take longer](https://www.financedigest.com/brand-loyal-brits-have-longer-relationships-with-their-car-than-their-last-lover.html "BRAND-LOYAL-BRITS HAVE LONGER RELATIONSHIPS WITH THEIR CAR THAN THEIR LAST LOVER") to recover than most of its peers. SLOWING REBOUND Britain’s [economy expanded rapidly in the first half](https://www.financedigest.com/global-economy-weathered-98bn-natural-hazard-loss-in-first-half-of-2016-according-to-aon-catastrophe-report.html "GLOBAL ECONOMY WEATHERED BN NATURAL HAZARD LOSS IN FIRST HALF OF 2016, ACCORDING TO AON CATASTROPHE REPORT") of 2021 helped by the fast initial roll-out of COVID-19 vaccines. But this has slowed due to a wave of coronavirus cases and [global supply](https://www.financedigest.com/oil-prices-steady-on-uncertain-global-outlook-and-supply-concerns.html "Oil prices steady on uncertain global outlook and supply concerns") chain chaos which in Britain has been exacerbated by new post-Brexit restrictions on trade and immigration. [Growth in the three months to August slowed](https://www.financedigest.com/visa-revenue-growth-slows-more-as-tough-economy-sobers-spending.html "Visa revenue growth slows more as tough economy sobers spending") to its weakest since April at 2.9%. Chip shortages which had hampered carmakers eased in August, the ONS said, helping manufacturing return to growth, but [car output](https://www.financedigest.com/britains-car-output-drops-6-as-supply-woes-persist.html "Britain’s car output drops 6% as supply woes persist") was still more than 14% below a peak in February. Supply-chain shortages were most visible in construction, where output fell for a [second month](https://www.financedigest.com/inflation-in-key-german-states-eases-for-second-month.html "Inflation in key German states eases for second month") in a row due to rising costs and shortages of steel, concrete, timber and glass. The economy is also likely to have taken a further hit in September from temporary shortages of [fuel at many petrol stations in England – caused by a lack of tanker](https://www.financedigest.com/oil-spills-and-near-misses-more-ghost-tankers-ship-sanctioned-fuel.html "Oil spills and near misses: more ghost tankers ship sanctioned fuel") drivers – and the impact of a surge in natural gas prices. Samuel Tombs, economist at Pantheon Macroeconomics, said [expectations that the BoE](https://www.financedigest.com/boeing-expects-max-7-to-be-certified-before-max-10-executive.html "Boeing expects MAX 7 to be certified before MAX 10 – executive") would act imminently looked misplaced. The continuation of modest GDP growth in August should convince the MPC that the [economy does not need to be cooled](https://www.financedigest.com/stocks-yields-fall-data-suggests-u-s-economy-cooling.html "Stocks, yields fall; data suggests U.S. economy cooling") immediately by raising interest rates,” he said. GDP would need to grow by an implausible 2.2% in September for it to match the BoE’s forecast in August for growth of 2.1% in the [third quarter](https://www.financedigest.com/greek-residential-property-price-recovery-picks-up-in-third-quarter.html "Greek residential property price recovery picks up in third quarter") as a whole, he added. Separate data from the ONS suggested the [impact of Brexit](https://www.financedigest.com/brexit-might-impact-our-migrant-pool-magazine.html "“Brexit might impact our migrant pool.”-Magazine") on trade between Britain and the European Union was easing. Imports of goods from EU countries remained lower than those from non-EU countries for an eighth [month in a row but the gap was the narrowest since](https://www.financedigest.com/uk-factories-suffer-worst-month-since-may-2020-as-economy-stumbles-pmi.html "UK factories suffer worst month since May 2020 as economy stumbles – PMI") Britain left the bloc’s single market on Jan. 1. The [data showed a similar picture](https://www.financedigest.com/a-picture-of-data-paints-a-thousand-words.html "A picture of data paints a thousand words") for British goods exports to the EU, the ONS said. (Reporting by David Milliken Editing by William Schomberg and Toby Chopra) --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---