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UPDATE 3-UK economy extends recovery from COVID crash, growth seen fading

Fri, 11th Sep 2020 07:15

* UK GDP expands by 6.6% in July, roughly as expected

* Finance minister Sunak says data "welcome"

* Economy still 12% smaller than before pandemic

* Jump driven by pubs and restaurants reopening

* Pound falls as service sector disappoints
(Adds CBI boss comments)

By Andy Bruce and William Schomberg

LONDON, Sept 11 (Reuters) - Britain's economy recovered half
of its COVID-19 crash by the end of July, helped by pubs and
restaurants reopening from lockdown, but the bounce-back is
expected to slow as job losses mount and Brexit tensions rise.

After shrinking by a record 20% in the second quarter,
output expanded by 6.6% in July, slower than June's monthly
rate, the Office for National Statistics (ONS) said on Friday.

Economists polled by Reuters had expected growth of 6.7%.

Finance minister Rishi Sunak welcomed the figures but added
that people were rightly worried about the coming months.

The economy remains 12% smaller than its level in February,
before the pandemic hit Britain.

"July was probably the last of the big step-ups in activity
and a full recovery probably won't be achieved until early
2022," Thomas Pugh, an economist with Capital Economics, said.

In response, the Bank of England was likely to ramp up its
bond-buying stimulus programme by a third, or 250 billion pounds
($320 billion), Pugh said.

Britain's economy suffered the sharpest second-quarter fall
of any Group of Seven nation in the April-June period.

Hopes for a swift rebound have faded as businesses struggle
to cope with social distancing rules and many people remain
reluctant to travel on public transport or go to crowded places.

Tensions between London and Brussels over a post-Brexit
trade deal are also mounting.


Furthermore, unemployment is expected to rise sharply
because Sunak has ruled out extending his coronavirus job
retention scheme which is due to expire at the end of October.

Parliament's Treasury Committee urged Sunak to "carefully
consider" a targeted extension of the scheme and other support
measures, a call echoed by the head of a major employers group.

Carolyn Fairbairn, director general of the Confederation of
British Industry said she was in "deep conversation" with the
government about a more selective version of the job subsidies
scheme to avoid long-term job losses.

"We need to make sure that other countries, for example
Germany, France, Australia, others who have put in place schemes
like this, don't steal a march on our economy at this time," she
told Sky News.

The pound fell slightly against the dollar as Friday's data
showed output in Britain's dominant services sector was a bit
weaker than expected. Growth in the much smaller
manufacturing and construction sectors exceeded forecasts.

Complicating the outlook, Brexit risks have resurfaced.

The European Union told Britain on Thursday it should scrap
a plan to breach their divorce treaty, but Prime Minister Boris
Johnson's government refused and pressed ahead with a draft law
that could sink four years of talks.

"We are far from out of the woods yet," Tom Stevenson,
Investment Director, Personal Investing, at Fidelity
International said, pointing to rising COVID-19 infections, new
rules on social gatherings and the end of the furlough scheme.
($1 = 0.7803 pounds)

(Additional reporting by Paul Sandle; Editing by Toby Chopra)

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