The UK economy bounced back quickly in January from the damage caused by the Omicron coronavirus outbreak, with a swift recovery in the services sector driving growth.
Gross domestic product increased 0.8 per cent on the previous month, faster than analysts had expected, after shrinking 0.2 per cent in December, official data showed on Friday. This took the three-month-on-three-month growth rate to 1.1 per cent, also ahead of expectations.
The Office for National Statistics said that on this monthly measure, GDP was 0.8 per cent above its pre-pandemic level. The recovery, however, has been uneven, with output in the health sector now more than 15 per cent above its January 2020 level, while consumer-facing services were well short of pre-pandemic activity levels.
The figures confirm that the spread of the Omicron variant dealt only a brief blow to the UK’s recovery and will reinforce the case for the Bank of England’s Monetary Policy Committee to raise interest rates when it meets next week in the face of soaring inflation.
They showed growth in the services sector was driven at the start of the year by a recovery in wholesale trade, expansion in information and communications technology and a rebound in the food and beverage sector as people began socialising again.
But economists warned that the outlook for growth was darkening as the war in Ukraine fuels inflation, eating into household incomes and threatening further disruption to supply chains.
Rishi Sunak, chancellor, said that despite the uncertainty caused by Russia’s invasion of Ukraine, government support over the course of the pandemic had “put our economy in a strong position to deal with current cost of living challenges”.
But Suren Thiru, head of economics at the British Chambers of Commerce, said the figures had been “pushed into the rear-view mirror by renewed domestic and global shocks”. Yael Selfin, chief economist at advisory firm KPMG, said growth momentum was “likely to be derailed” by the war.
Samuel Tombs, at the consultancy Pantheon Macroeconomics, said that while it was a “safe bet” the MPC would raise interest rates to 0.75 per cent next week, the recovery could stall in the second quarter of 2022 as the end of free Covid-19 testing and widespread vaccinations hit output in the health sector, and the pressures on household finances mounted.
Growth in the health sector, which has skewed GDP data in some previous months, accounted for 0.2 percentage points of January’s overall output growth, but this was largely due to GPs seeing more patients, with increases in the Test and Trace programme largely offset by a fall in vaccinations.
Separately, the ONS published data on trade showing the UK’s trade deficit widened to a record high of £16.2bn in January, as imports from the EU surged while exports to the bloc fell by £3bn. This was partly due to changes in the way trade flows between the UK and EU are measured, which accounted for two-thirds of the drop in exports, the ONS said.
But Tombs noted that, after adjusting for inflation, UK goods exports were a “whopping” 19 per cent below their average level in 2018, a stark contrast to the double-digit growth in goods exports from advanced economies — underlining the degree to which UK exporters had lost market share.
Source: Economy - ft.com
