- Data suggest the recovery has “stalled”.
- It would be wrong to pin the weak UK GDP data on Brexit.
- Now is the wrong time to ramp up the tax burden.
Commenting on ONS GDP figures for July 2021, Julian Jessop, Economics Fellow at free market think tank the Institute of Economic Affairs, said:
“The weak UK GDP data for July suggest that the recovery has stalled. While there are good reasons to think this is only a temporary pause, the government needs to focus on boosting growth rather than raising taxes.
“The stagnation in July partly reflects renewed consumer caution over Covid (output in consumer-facing services fell by 0.3 per cent). Indeed, the initial impact of ‘Freedom Day’ may even have been negative. But this at least should be temporary, and the August retail surveys are mostly reassuring.
“There are also many problems on the supply side. Some of these will be temporary too – notably the “pingdemic” and the tying up of workers on furlough. Others are global and likely to be longer lasting, though markets will be able to fix these over time.
“It would be wrong to pin the weak UK GDP data on Brexit. Other economies in Europe, and the US, are facing similar problems. Unfortunately, they do not publish monthly GDP data. But on other indicators, such as retail sales, car production, and activity in the construction sector, they were doing at least as badly.
“Overall, the July GDP data were disappointing, but should only be a pause before a renewed acceleration. The UK labour market is still bouncing back strongly, and there’s plenty of scope for more spending by both consumers and businesses. The relative flexibility of the UK economy should help too.
“Nonetheless, now is clearly a bad time to be ramping up the tax burden even further. The Bank of England also urgently needs to rethink whether it should be adding to inflation risks by continuing to pump more money into an economy which is already running into supply constraints.”
Contact: Annabel Denham, Director of Communications, 07540 770 774
IEA spokespeople are available for interview and further comment.