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UK economy grew more slowly than expected before Omicron hit

Britain’s economy grew at a slower pace than first thought between July and September amid a poorer performance from health,…

By admin , in Money , at December 22, 2021 Tags: , , ,

Britain’s economy grew at a slower pace than first thought between July and September amid a poorer performance from health, hairdressers and lower trade volumes after Brexit, according to official figures.

Revealing the growth rate was worse than initially calculated even before the Omicron coronavirus variant hit, the Office for National Statistics said gross domestic product (GDP) rose by 1.1% in the three months to September, down from an initial estimate of 1.3%.

In a slowdown from a growth rate of 5.4% in the second quarter, the latest figures showed household consumption helped to maintain momentum in the final months of the summer as the economy reopened from Covid restrictions. Household consumption rose by 2.7%, more than originally estimated, making the largest contribution to expenditure.

However, statisticians said the weaker headline GDP figure was driven by new data for visits to GP surgeries and outpatient follow-up appointments, with a sharp drop in government consumption of health services over the period. Consumer spending on other personal services, such as hairdressing, was also weaker than thought.

In a sign of fading momentum before Omicron emerged, the latest snapshot also revealed a more substantial drag than expected from trade amid disruption to global supply chains and additional trade barriers from Brexit. Exports fell by 3.5% during the third quarter, while the overall trade balance – which measures the difference between imports and exports – fell to a deficit of 1.9%, from a deficit of 1.2% in the first estimate.

The export of goods fell in the third quarter by 8.8% as fewer products including machinery and transport equipment were sent overseas. This was only slightly partly offset by a rise in service exports of 2.7%, driven by financial services.

In contrast, total imports to the UK rose by 1.1%, more than previously estimated, as a result of an increase in the import of fuels, goods and chemicals.

The UK’s balance of payments with the rest of the world, which measures all flows of money in and out of a country, widened to 4.2% from 2.3% in the second quarter as exports fell, imports grew, and companies received more income on their holdings on equity investment in the UK through dividends.

The latest figures also showed business investment fell 2.5% on the quarter despite the government putting in place a super-deduction tax break at the spring budget to encourage companies to invest in machinery, buildings and other productivity-enhancing projects.

Gabriella Dickens, a senior UK economist at the consultancy Pantheon Macroeconomics, said Brexit-related weakness and supply chain disruptions were to blame for the weaker performance for international trade.

“While high levels of business confidence suggest that [investment] will rebound in 2022, net trade likely will continue to be a drag, as British manufacturers continue to be slowly cut out of global supply chains, due to Brexit,” she said.

Despite the weaker performance in the third quarter, revisions to the economic performance in 2020 showed GDP fell by less than expected in the year when the coronavirus pandemic first shook the global economy.

GDP fell by 9.4%, down from an earlier estimate of 9.7%, although this still marked the biggest contraction for a century. However, the improvement means GDP is now estimated to be closer to its pre-Covid peak, at only 1.5% below, compared with a previous estimate of 2.1%.

The figures cover a period before the spread of Omicron prompted the government to introduce Covid plan B measures, leading to a steep decline in trade for hospitality venues and other firms as more people decided to stay at home.

Faced with a rapid drop in consumer confidence amid a wave of cancellations for hospitality venues in the key festive season, the chancellor, Rishi Sunak, announced a £1bn package of financial support on Tuesday to cushion the fallout for the economy.

The Bank of England warned earlier this month that growth would slow further to about 0.5% in the final three months of 2021, amid a sharp jump in inflation to the highest rate in a decade.

However, economists said a sustained drop in activity or tighter government restrictions in the new year could drag GDP into reverse. Danni Hewson, a financial analyst at the stockbroker AJ Bell, said: “Even with new government support, Omicron will act like a lead weight around the ankles of these sectors, and with growth already sleepwalking its way into 2022, there’s a real likelihood the next set of figures will show the direction of travel has been reversed.”