The UK economy hardly grew in October as supply chain disruption hit activity and the rebound in many services stuttered, strengthening the likelihood of a delay to an interest rate rise.
UK output rose just 0.1 per cent per between September and October, data from the Office for National Statistics showed on Friday. This fell short of the 0.4 per cent forecast by economists polled by Reuters and was a sharp decline from the 0.6 per cent expansion the previous month.
The slowdown in growth was due to a combination of factors, according to the ONS. Restaurants business fell back after a strong summer, resulting in a 5.5 per cent drop in accommodation and food service activity.
Meanwhile, construction registered its biggest fall since April last year, “partly driven by shortages in raw materials”, said the ONS. Production sank 0.6 per cent with sharp declines in mining and quarrying and gas distribution.
With “news that the economy was hardly growing at all before Omicron . . . we doubt the Bank of England will raise interest rates next Thursday”, said Paul Dales, economist at Capital Economics, a consultancy.
Dales added that the government’s recently imposed “Plan B” restrictions to limit the spread of the Omicron coronavirus variant could reduce gross domestic product by up to 0.5 per cent in December.
Manufacturing output was flat in October. Kitty Ussher, chief economist at the Institute of Directors, a think-tank, said that while demand in the sector remained strong “production is being hampered by difficulties sourcing supplies”.
The fall in manufacturing was partially offset by growth in the health sector, driven by a continued rise in face-to-face appointments at GP surgeries in England.
Second-hand car sales and employment agencies also boosted the economy, with travel agencies and tour operators also registering a strong increase in holiday bookings as infections fell in October.
The figures underscore “underlying weakness of many parts of the economy”, said Yael Selfin, chief economist at KPMG UK, noting that the main drivers of growth came from the NHS and travel sector. She added that gains were “likely to be reversed as pandemic-related restrictions are reintroduced”.
The UK’s output in October was still 0.5 per cent below in February 2020, before the pandemic.
However, assessing the UK economic rebound is complicated by differences in how the ONS calculates data. In the third quarter, output was still 2.1 per cent below its pre-pandemic level, a larger gap than any other G7 country.
Separate ONS data showed UK goods imports and exports to the EU fell in October compared with the previous month, in contrast with a strong expansion of trade with non-EU countries.
UK goods exports were 15 per cent below their October 2018 level, contrasting with an expansion in global trade, according to separate data by the CPB world trade monitor.
“UK exports still were subdued in October, largely due to Brexit,” said Gabriella Dickens, economist at consultancy Pantheon Macroeconomics.
Considering the stronger trade performances in other countries “it appears that UK exporters have continued to lose market share this year”.
Source: Economy - ft.com
