Disappointing GDP figures show UK recovery lost momentum ahead of second lockdown
UK GDP grew by a record quarterly amount in the three months to September, but failed to make up for its historic slump the previous quarter as Covid-19 brought large swathes of the economy to a halt.
The UK economy grew by a record 15.5 per cent in the third quarter, the Office for National Statistics said, but the rebound fell short of expectations as the economy struggled to maintain its recovery.
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The record-breaking third-quarter growth in UK GDP is below the 15.8 per cent expansion forecast by economists, but is the largest quarterly growth ever recorded in the UK economy.
The growth in the three months to September follows a record-breaking slump of 19.8 per cent in June, as the coronavirus pandemic and subsequent lockdown measures brought large swathes of the UK economy to a halt.
UK GDP grew by a slower-than-expected 1.1 per cent in September even before the latest restrictions on businesses were introduced, ONS data showed. Economists polled by Reuters had forecast a 1.5 per cent expansion for the month.
“GDP probably won’t return to September’s level until the spring,” said Samuel Tombs of Pantheon Macroeconomics.
“GDP still was 8.6 per cent below its January 2020 peak in September, even though virtually all businesses had resumed trading and Covid-19 restrictions were light touch back then,” he continued.
Tombs added that he expects the introduction of a second national lockdown in England to lead to a contraction in GDP in the final quarter of 2020.
“On a monthly basis,” he continued, “it probably won’t recover to September’s level until the spring, when it should be possible for Covid-19 restrictions to be sustainably relaxed.”
Responding to the GDP figures, Bank of England governor Andrew Bailey said there was still a “huge gap” in the economy, but added that news of a potential effective Covid-19 vaccine would help lift economic uncertainty.
Last week, the Bank said the world’s sixth-biggest economy was likely to shrink by a record 11 per cent in 2020 before growing by just over seven per cent in 2021.
The International Monetary Fund has forecast a 10.4 per cent slump in UK GDP for 2020 and growth of 5.7 per cent the following year.
However, news of a potentially effective Covid-19 vaccine has since emerged, raising hopes that next year’s recovery could be stronger than the BoE’s or IMF’s forecasts.
Chancellor Rishi Sunak said the figures “show that our economy was recovering over the Summer, but started to slow going into Autumn”.
Sunak added that the measures the government has since taken to curb the spread of Covid-19 “mean growth has likely slowed further since then”.
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“While there was confirmation that the UK exited recession, the historically strong headline figure masks a loss of momentum through the quarter, as the temporary boost from the release of pent-up demand as the economy reopened gradually faded,” said Suren Thiru, head of economics at the British Chambers of Commerce.
“With output still well short of pre-crisis levels there was little sign of a ‘V’-shaped recovery even before the latest lockdown,” he added.