UK growth slowed more than expected in the third quarter as the boost from businesses reopening eased and shortages of goods and workers hit economic activity.
Gross domestic product rose by a monthly rate of 0.6 per cent in September, up from the 0.2 per cent expansion in August, according to data from the Office for National Statistics on Thursday.
The September figure was stronger than the 0.4 per cent forecast by economists polled by Reuters. Output was 0.6 per cent below February 2020 levels suggesting the economy has largely recovered from the hit of Covid-19 restrictions.
In the three months to September, however, UK output grew 1.3 per cent, less than the 1.5 per cent forecast by the Bank of England due to downward revisions to figures for both August and July. Growth was also sharply down from the 5.5 per cent expansion in the second quarter when it was boosted by the reopening of many businesses.
Alpesh Paleja, lead economist at the CBI, said it was “encouraging” that the economy maintained some momentum in September, but “there’s no denying that this rounded off a tough quarter for businesses, with supply constraints biting hard”.
A combination of rising Covid cases and shortages of raw materials, components and labour “came together to present significant headwinds to growth”, he said.
China’s economy exceeded its pre-pandemic level last year and the US did the same in the second quarter.
Assessing the extent to which the UK economy is near pre-pandemic levels is complicated by differences in which the ONS calculates monthly and quarterly data.
Based on quarterly data, which are those used by the Bank of England and the Office for Budget Responsibility, output was still 2.1 per cent below its pre-pandemic levels, a larger gap than any other G7 country.
The Bank of England forecasts growth to slow in the fourth quarter to 1 per cent, reflecting supply chain disruptions and the impact of higher inflation on businesses and household spending.
James Smith, research director at the Resolution Foundation, said “the prospect of a winter living-standards ‘crunch’ providing a further headwind in the coming months means that we are not out of the pandemic woods yet”. He added that this was why the chancellor “was right to provide more support for the economy at the Budget, and the Bank of England did not raise interest rates last week”.
While the uptick in growth in September was encouraging, economists pointed to some areas of concern.
The September expansion was largely driven by health activity and a large rise in face-to-face appointments at GP surgeries in England, which are considered a temporary boost following a backlog of work accumulated during the pandemic.
Lawyers also had a busy month as housebuyers rushed to complete purchases before the end of the stamp duty holiday, providing another largely temporary boost.
But car production was down 8.2 per cent, registering the largest fall since May, together with a fall in car sales as the sector was badly hit by semiconductor shortages and supply chain disruptions. Manufacturing as a whole was marginally down in the month and well below pre-pandemic levels.
Moreover, business investment in the third quarter remained 12.4 per cent below its pre-coronavirus pandemic levels, suggesting uncertainty over the pace of the recovery and the impact of Brexit.
“Lower business investment could reduce the future supply capacity of the economy meaning the economy could grow less quickly without generating inflation,” said Thomas Pugh, economist at RSM UK.
The UK goods and services trade balance also widened in the third quarter as imports grew while exports fell.
UK exports were well below the 2019 average as “exporters have struggled to capitalise on strong external demand, most likely due to Brexit and some Covid-related shortages,” said Gabriella Dickens, economist at Pantheon Macroeconomics.
Source: Economy - ft.com
