GDP is still looking lean, despite – or because of – August’s discount dinners

Rishi Sunak’s popular “eat out to help out” scheme will be remembered in this week’s publication of third-quarter GDP figures for the major boost it gave Britain’s pub and restaurant trade.

In the August rush to grab a discount dinner it seemed like every table in every hospitality venue in the country was booked between Monday and Wednesday, and analysts believe that underpinned a rise in consumer confidence and with it GDP, the measure of national income, between July and September.

Andrew Goodwin, chief UK economist at Oxford Economics, said without this increase in hospitality spending, and its spillover effects into the high street more generally, the 2.1% month-on-month growth in August would have been closer to the modest rise he expects took place in September, of 0.9%.

On Thursday, the Office for National Statistics will reveal the GDP growth rate for September and, with it, the figure for the entire third quarter. One thing not in doubt is that the UK economy bounced back from its record-breaking 19.8% dive in the second quarter.

Goodwin expects the continued reopening of the economy in July and the rush of pupils back to school in September will have pushed third-quarter GDP up by 15.5%. Philip Shaw of asset management firm Investec pitches his estimate at 15.8% following a more-optimistic growth forecast for September of 1.5%.

The chancellor is likely to take credit for much of the rebound in GDP, and not just because he stepped in with the eat out to help out scheme.

Sunak will say the government’s package of loans, grants and furlough wages subsidies announced in March – which was still largely in place during the third quarter – gave the economy a platform for recovery.

However, critics believe that it was in this period that the seeds of a second lockdown and a contraction in GDP in the fourth quarter were sown.

A report by a University of Warwick economist, Thiemo Fetzer, found that eating out in the first half of the week during August was closely linked to an increase in Covid-19 cases, with more in areas with lots of participating restaurants. He also discovered that infections in these areas slowed after the scheme ended.

While the number of cases climbed, the Treasury’s refusal to extend the furlough scheme, even as tiered regional lockdowns were discussed, compounded the anxiety felt by thousands of businesses and forced them to consider making staff redundant.

Shaw said labour market figures for September, also due this week, would show the rate of unemployment edged higher, from 4.5% in August to nearer 5%.

“The unemployment rate looks likely to edge up further in the months ahead, but we would now note the extension of the furlough scheme until March, which will offer some support to the jobs market,” he added.

Labour, responding to the decisions last week by the Bank of England to increase its stimulus package by £150bn to £795bn – a move that followed a downgrade in its forecasts for growth this year and next – accused the chancellor of always being one step behind events.

Goodwin said the adoption of a less-restrictive lockdown this time around would mean a smaller fall in GDP, of about 10%, in November, and a return to growth in December that would leave GDP down by about 3% in the fourth quarter. But that’s only if the lockdown ends on 2 December.

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