U.K. Economy Closer to Pre-Covid Levels Despite 3Q Downgrade
(Bloomberg) -- The U.K. economy has recovered from the pandemic faster than previously thought despite a downgrade to growth in the three months through September.
The Office for National Statistics said gross domestic product is now 1.5% smaller than at the end of 2019, an improvement on its previously estimated shortfall of 2.1%.
Upgrades to output throughout 2020 and early 2021 leave the economy better placed to absorb the shock of any new restrictions to slow the spread of the omicron variant of coronavirus. GDP grew 1.1% in the third quarter, slower than the previous estimate of 1.3%.
The latest figures suggest the economy was losing momentum before supply shortages set in, inflation took off and omicron emerged. The government has refused to rule out further economically damaging restrictions after Christmas to prevent the health service being overwhelmed.
The ONS revisions showed Britain weathered the first year of the pandemic better than thought, with the economy shrinking 9.4% rather than 9.7%. That remains the biggest contraction since 1921.
Despite the upgrades, the economy is unlikely to return to its pre-pandemic size until well into 2022. That milestone has already been passed by the U.S. and is set to be achieved by France in the current quarter. Only Spain and Japan among advanced economies have more lost output to make up.
U.K. households continued to save a significant portion of their disposable income in the third quarter as caution reigned despite the ending of lockdown restrictions.
The saving ratio was 8.6% between July and September. That’s down from 10.7% in the second quarter but well above the 5% average in the two years prior to the pandemic.
Household consumption was the principle driver of growth in the third quarter and, as behavior returned to normal with the easing of restrictions and the reopening of the economy in July, hospitality, arts, entertainment and recreation were the industry sectors that saw the fastest pickup.
Offsetting that was a fall in underlying inventories, which was likely to reflect some of the recent supply-chain challenges, the ONS said.
A lack of opportunities to spend during lockdowns and a limited willingness to splurge when curbs were lifted mean Britons have amassed huge amounts in bank accounts. Economists expect those excess savings to support consumer spending as soaring inflation and looming tax increase erode living standards.
Growth is expected to slow to a crawl in the current quarter amid worsening supply-chain disruptions and a surge in coronavirus cases that is keeping customers away from stores and restaurants. The economy could contract in the early months of 2022 if new restrictions are announced.
The current account deficit, the gap between money coming into the U.K. and the flows leaving, widened to 24.4 billion pounds ($32 billion) last quarter. That’s the equivalent of 4.2% of GDP. The deterioration was largely due to a sharply wider trade deficit.
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