The U.K. economy showed its lowest recovery pace since lockdown after jumping 1.3% during the third quarter. The official data revealed on Thursday will be a key ingredient in the Bank of England’s interest rate predicament, as other G7 economies depicted better growth.
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U.K. Economy, Below Expectations
According to the Bank of England and a Reuters poll of economists, Britain’s gross domestic product was expected to grow by 1.5%.
“The Office for National Statistics said Britain's economy remained 2.1% smaller than it was at the end of 2019, a bigger shortfall than in fellow Group of Seven countries Germany, Italy, and France,” the news agency reported.
Analyzing other nations, the U.S. has already exceeded its “pre-crisis size.” Despite Canada and Japan yet to disclose data for the same period, both nations had recovered more ground in Q2 than Britain in the third quarter.
“Thursday's data showed British GDP grew by 0.6% in September –stronger than a forecast of 0.4% in the Reuters poll– but estimates for previous months were revised lower. GDP in July fell by 0.2%, a bigger decline than a previously estimated fall of 0.1%, while output in August was shown rising by just 0.2%, weaker than an originally reported 0.4%.”
Suren Thiru, head of economics at the British Chambers of Commerce, said that “Although monthly output rebounded through the quarter from July's contraction this is more likely to reflect a temporary boost from restrictions easing.”
Since the government’s job protection scheme expired in October, the Bank of England is keeping interest rates on hold. Also, given the U.K. economy failing to meet recovery expectations, the bank said it would follow the state of the job market from close range.
Paul Dales, an economist at consultancy firm Capital Markets, said the 0.6% growth in September is “one reason why we doubt the Bank of England will raise interest rates above 0.50% next year.”
The GDP growth recorded that month was aided by a solid performance of the health sector, as patients returned to consultancy rooms after postponing appointments amid the pandemic, “leading to a 0.7% rise in the services sector from August.”
“Notably, business investment remained well down on pre-pandemic levels in the three months to September. Meanwhile, the trade deficit widened as goods exports to non-EU countries fell and imports –particularly of fuel– from non-EU countries increased,” the ONS chief economist, Grant Fitzner, said.