UK economic recovery slows sharply as GDP grows by 1.3%

Surging infection rates, the ‘pingdemic’, rising prices and supply constraints put the brakes on growth

Britain’s recovery from its third Covid-19 lockdown slowed sharply over the summer as the economy’s growth was hit by rising infection rates, the pingdemic and global supply shortages.

Figures from the Office for National Statistics show that national output expanded by 1.3% in the three months to September, leaving it still more 2.1% below its pre-crisis level in the fourth quarter of 2019.

The third-quarter performance followed expansion of 5.5% in the three months to June – a period when restrictions on activity were being lifted.

Staff shortages and supply constraints blunted the impact of the ending of remaining lockdown restrictions in July, with a poorer trade performance – influenced by more expensive imports of oil – also acting as a brake on growth.

Of the three main parts of the economy, services recorded the fastest growth. A 30% jump in business for hotels and restaurants meant the sector – which accounts for about four-fifths of GDP – rose by 1.6% over the quarter.

A 0.3% decline in manufacturing output restricted growth in the broader production sector to 0.8%, while construction recorded a 1.5% fall.

The ONS figures show Britain’s economic recovery to have been slower than that of other developed nations, with the US 1.4% above its pre-pandemic peak and the eurozone 0.5% below. Of the three biggest economies in the single currency bloc, France is 0.1% below its pre-crisis level, Italy 1.4% down and Germany with 1.5% of GDP to catch up.

Rishi Sunak said the economy was continuing to recover but the chancellor added: “As the world reopens we know that there are still challenges to overcome.”

In September alone, gross domestic product grew by 0.6%, following a rise of 0.2% in August and a fall of 0.2% in July. Using monthly figures, which dates the pre-crisis peak in the economy to February 2020, GDP is 0.6% below the level before the global health crisis began.

An increase of almost 5% in health output – caused by more face-to-face GP appointments – was largely responsible for September’s GDP figure beating expectations of a 0.4% increase. Paul Dales, a UK economist at Capital Economics, said that without the boost from health, the economy would have grown by just 0.1%.

The ONS chief economist, Grant Fitzner, said: “Growth picked up in September and the UK economy is now only slightly below pre-pandemic levels.

“This latest increase was led by the health sector, boosted by more visits to GP surgeries in England. Lawyers also had a busy month as house buyers rushed to complete purchases before the end of the stamp duty holiday. However, these were partially offset by falls in both the manufacture and sale of cars.

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“Notably, business investment remained well down on pre-pandemic levels in the three months to September. Meanwhile the trade deficit widened as goods exports to non-EU countries fell and imports – particularly of fuel – from non-EU countries increased.”

Suren Thiru, the head of economics at the British Chambers of Commerce, said: “The latest data confirms that the UK’s economic recovery lost momentum in the third quarter as significant staff and supply shortages limited activity.

“Although monthly output rebounded through the quarter from July’s contraction this is more likely to reflect a temporary boost from restrictions easing, rather than a meaningful improvement in the UK’s underlying growth trajectory.”

Contributor

Larry Elliott Economics editor

The GuardianTramp

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