The UK economic recovery nearly stalled in October as the services sector was hit by Covid-19 restrictions before the full November lockdown in England and increased Brexit uncertainty.
Output grew 0.4 per cent in October compared with the previous month, down from 1.1 per cent in September and the lowest rate since May, data from the Office for National Statistics showed on Thursday.
Jonathan Athow, deputy national statistician for economic statistics at the ONS, said: “Public services output increased, while car manufacturing continued to recover and retail again grew strongly. However, the reintroduction of some restrictions saw services growth hit, with large falls in hospitality, meaning the economy overall grew only modestly.”
The near stagnation, which was in line with economists’ expectations, left the economy 8.2 per cent smaller than in October last year and 7.9 per cent smaller than in February, before the pandemic. The Office for Budget Responsibility, the fiscal watchdog, does not expect the UK economy to reach its pre-virus level until the end of 2022.
Chancellor Rishi Sunak said: “I know people are worried about the winter months, but we will continue to support people through our plan for jobs to ensure nobody is left without hope or opportunity.”
Sterling was down 0.7 per cent against the dollar at 1.33 on Thursday morning, as traders digested the GDP data and the overnight news from Brussels that large differences remain between the EU and UK in the Brexit talks.
Analysts warned that worse data are yet to come as the four-week lockdown in England and the increased Brexit uncertainty are expected to weigh on growth in the final months of the year.
Suren Thiru, head of economics at the British Chambers of Commerce, said: “October’s slowdown is likely to be followed by a significant contraction in economic activity in November as the effects of the second coronavirus lockdown are felt.”
The rollout of the vaccine offers “some positive momentum” said Rory Macqueen, principal economist at the National Institute of Economic and Social Research, a think-tank, but “the final act of Brexit is likely to offset that in the early months of 2021”.
All sectors registered a slowdown in growth in October, with output in the services sector, which bears the brunt of the Covid-19 restrictions and accounts for 80 per cent of the economy, only expanding 0.2 per cent month on month in October, down from 1 per cent growth in September.
Output in the services sector was still 8.6 per cent down on the level in February, a larger gap than for the other sectors.
The accommodation and food service activities subsector dragged on growth in October, falling by 14.4 per cent month on month as tightening coronavirus measures hit demand.
The services sector’s modest expansion was only partially mitigated by stronger growth in manufacturing and construction.
Manufacturing output grew 1.7 per cent in October compared with the previous month, with nearly all types of production reporting expansion.
Output in car production jumped 5.4 per cent as large businesses boosted demand to meet increased domestic and international demand. However, car production was still 18 per cent below February’s level.
The recovery also continued in the construction sector, which saw output expanding 1 per cent month on month in October, supported by government aid to the housing sector, which has registered strong growth since the summer.
Output in both manufacturing and construction in October climbed to about 6.5 per cent below pre-pandemic levels.
The UK is one of the few countries that produce monthly GDP data, but quarterly figures for the three months to September revealed that compared with the last three months of 2019, output fell more in the UK than any other G7 country.
Yael Selfin, chief economist at advisory group KPMG UK, estimated that the economy could shrink 2 per cent in the final quarter compared with the previous three months, which would be “one of the worst [performances] among developed economies”.
Source: Economy - ft.com
