What everyone warned for is now a fact: Supply chain woes are slowing UK economic growth
The ONS said this morning that UK economic growth slowed sharply between July and September. The official figures show this is largely due to the ongoing supply chain problems.
The economy expanded by 1.3 per cent between July and September, down from growth of 5.5 per cent in the previous three months.
The ONS said growth picked up in September to a better-than-expected 0.6 per cent but revisions showed the performance was worse than first thought in July and August, with signs the global supply chain issues were taking their toll.
Data showed a 0.2 per cent contraction in July, against the 0.1 per cent fall previously estimated, while August showed growth of 0.2 per cent, against the 0.4 per cent initial reading.
Car sales tumble
Car sales, in particular, have been hit by a shortage of semiconductor chips, while construction projects were delayed amid difficulties in getting materials, according to the ONS.
The third-quarter result means the economy is now 2.1 per cent below where it was before the pandemic struck. On a month-by-month basis, the economy in September was 0.6% below pre-pandemic levels seen in February 2020.
The ONS said gross domestic product (GDP) in September was buoyed by the health sector, with trips to the doctor increasing ahead of the start of flu season and as Britons returned to offices and schools reopened.
Grant Fitzner, chief economist at the ONS, 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,” he said.
“However, these were partially offset by falls in both the manufacture and sale of cars.
“Notably, business investment remained well down on pre-pandemic levels in the three months to September.”
The slowdown in third-quarter growth comes after the Bank of England held off from raising interest rates last week despite soaring inflation.
It wanted to see how the jobs market and wider economy was holding up after the end of furlough and due to the supply problems before increasing rates from 0.1 per cent.
The Bank had expected growth to slow to 1.5 per cent in the third quarter and forecasts it will pull back further to 1 per cent in the final three months of 2021.
The growth slowdown raises the threat of so-called stagflation – slowing growth combined with rising inflation – as the cost of living rockets higher with soaring energy and fuel costs adding to price increases due to supply issues.
The Bank has warned that inflation will jump from 3.1 per cent to 4.5 per cent by November and hit around 5% next April, the highest level for a decade.
The latest ONS figures show further evidence of supply chain strain on the UK economy, with car production, renting and leasing hit by the shortage of new cars throughout the quarter, while construction was also knocked in July and August.
Overall, growth in the trade and repair of motor vehicles sector was down 13.7 per cent in September, compared with pre-pandemic levels in February.
The figures also revealed a 2.9 per cent jump in fuel sales by volume in September amid panic-buying on forecourts caused by some petrol station closures due to driver shortages.
The sector-by-sector breakdown for the third quarter showed services output rose 1.6% between July and September, down from 6.5 per cent in the second quarter, while manufacturing saw a 0.3 per cent decline with a 1.5 per cent contraction in the construction industry.