U.K. Economy Surpasses Pre-Pandemic Size With November Surge

(Bloomberg) --

The U.K. economy surpassed its pre-pandemic size in November for the first time with surprisingly strong growth before the omicron variant of the coronavirus struck.

Gross domestic product rose 0.9% from October, when it gained 0.2%, the Office for National Statistics said Friday. Output was 0.7% above its level in February 2020, before the pandemic started.

November saw strength across the board with services, construction and manufacturing all expanding more strongly than forecast. However, economists are predicting contractions in both December and January when the virus led consumers to cancel events and hit companies with unprecedented levels of staff absences.

“The U.K. economy was in good shape as it entered into the latest wave of the pandemic,” said Dean Turner, an economist at UBS Global Wealth Management. “January is likely to be another weak month, but we expect the economy to recover reasonably swiftly thereafter.”

On a quarterly basis, GDP in the fourth quarter will reach or surpass its level at the end of 2019 unless output falls by more than 0.2% in December. Bloomberg Economics is predicting a 0.5% fall. 

What Bloomberg Economics Says...

“The U.K. economy carried significantly more momentum than expected before the omicron variant of Covid-19 emerged. Output is likely to fall modestly amid a surge in infections and tighter government restrictions. But the impact is likely to be short-lived and we expect the economy to make up lost ground this year

--Dan Hanson, Bloomberg Economics. Click for the REACT

The figures many fuel speculation that the Bank of England will raise interest rates again next month to quell inflation, which it expects to leap over 6% this year, triple the targeted level. Markets are betting the benchmark interest rate will be increased by around a percentage point over the next year.

Chancellor of the Exchequer Rishi Sunak dubbed the figures “amazing” and said they’re “a testament to the grit and determination of the British people.”

The British Chambers of Commerce said the figures are unlikely to be sustained and that risks are piling up for the economy. Those include a squeeze on consumers coming with a jump in taxes and energy bills due to hit in April.

“Surging inflation and persistent supply-chain disruption may mean that the U.K.’s economic growth prospects remain under pressure for much of 2022,” said Suren Thiru, head of economics at the business lobby group.

Service industries that account for about 80% of the economy expanded 0.7% in November, slightly more than expected. 

That was lifted by a Covid booster-vaccine campaign that increased output from the health sector. Retailers also reported strong gains -- and some of that held up in December when footfall declined more gradually than in the rest of Europe.

 Manufacturing gained 1.1% and construction by 3.5%, both figures more than five times the pace economists had forecast.

That suggests that the supply disruptions that weighed on industry in October eased somewhat during the following month.

Separate figures showed imports of goods excluding precious metals rose by almost 5% in November, while exports fell 1%.

Imports from countries outside the European Union were higher than those from EU countries for the 11th consecutive month, with the gap now at the widest point of the year. Imports of fuel account for most of the difference.

©2022 Bloomberg L.P.