"Wobbly wheels" for the UK's economic recovery? Businesses react to July's GDP figures

The Office for National Statistics (ONS) has announced that the UK economy grew by 0.1 per cent during July.

The rise fell short of City economists’ growth forecast of 0.6 per cent, a dip being attributed by some to the spread of the Delta variant of COVID-19.

Business leaders across the country have reacted to the news and given their thoughts on what this means for firms around the UK.

Ian Warwick, managing partner at Deepbridge Capital

“Today’s GDP data shows a slowdown in the UK’s positive growth for the economy, and it is therefore more important than ever that scaleup businesses, particularly in high-growth sectors such as digital technologies and life sciences are supported.

“They will be at the very heart of economic growth as we create an economy fit for the twenty-first century.

“Government initiatives such as the Enterprise Investment Scheme (EIS) have never been more important for helping entrepreneurs and innovators source the funding they require, whilst also offering private investors with tax incentives to develop UK-supporting private equity portfolios.

“With our EIS funds reaching record levels of funding in 2020/21 it is evident that there is considerable demand from investors and financial advisers alike to invest in early-stage UK companies which we believe will be at the forefront of our economic recovery.”

Sam Fuller, director of Financial Markets Online

“The wheels haven’t yet come off Britain’s recovery, but they are wobbling. With growth in the UK’s dominant services sector flatlining and retail sales falling, the markets are rapidly recalibrating their expectations.

“One thing that won’t change any time soon is interest rates. With CPI falling to a surprisingly benign 2 per cent in July, the Bank of England will have no hesitation in holding interest rates at their current 300-year low to support growth.

“But the prospects for the wider economy are more balanced. The recovery is looking increasingly brittle, and with consumer spending slipping, the slowdown cannot be dismissed as a short-term supply issue.

“The question now is whether these are just teething problems for the recovery or if things are running out of steam as the end of the furlough scheme draws near. Whichever it is, both the Pound and UK equities are likely to face some trying times in coming weeks.”

William Bain, head of trade policy at BCC

“Exports to the EU fell in July, largely driven by falls in medicinal and pharmaceutical sales. Although there was evidence of an increase in exports to the EU in the second quarter of the year compared with the first, the most striking comparisons are with three years ago, before pandemic and Brexit factors took hold.

“This provides a less favourable comparison, with EU imports £3bn lower and exports to the EU £1.7bn lower in July 2021 than in July 2018.

“The data also points to the effects labour shortages, particularly among HGV drivers, are having on exports. We will be keeping a close eye on the next set of data, in October, to assess the impact this is having on food imports.

“Overall, the figures remain concerning. Taken in conjunction with German trade data from earlier this week, the UK is clearly doing less trade with the EU than 3 years ago. SMEs and other businesses will want to see steps being taken by the UK Government and the EU to help improve this situation in the coming months.”

Russ Mould, investment director at AJ Bell

“A big miss on UK GDP expectations didn’t do any harm to the pound, with the currency rising 0.2 per cent against the US dollar to $1.3862. In turn, the main indices on the UK shrugged off the news.

“The FTSE 250, which is more focused on UK domestic businesses, nudged 0.1 per cent ahead to 23,830 while the more international-focused FTSE 100 advanced 0.3 per cent to 7,047.

“Helping to steady the ship was a conversation between US President Joe Biden and Chinese President Xi Jinping where they discussed the need to ensure competition doesn’t veer into conflict. The fact the two parties are engaging is a positive and perhaps long overdue, given this was only Biden’s second call with Xi since coming into power.

“Markets will want to see a rebuilding of relationships between the two nations after Donald Trump caused so much damage during his tenure.

“The latest engagement between the leaders certainly helped to lift Asian markets, with the Hang Seng rising 1.4 per cent and the Nikkei up 1.3 per cent. Investors are clearly hoping that better relationships between the US and China will be good for trade.

“Add in the fact that the European Central Bank didn’t spook investors too much with its latest policy update – reassurance that it will only slowly withdraw stimulus measures – meant that markets are ending the week on a much brighter note.

“There are still the headwinds of inflation, supply chain issues and Covid Delta variant to contend with, but on balance markets are still finding plenty of reasons to keep buying equities.”