UK’s Q4 GDP growth likely to remain subdued

Written by Mr. Kunal Sawhney, CEO, Kalkine Media

The gross domestic product (GDP) of the United Kingdom has witnessed a marginal growth in October of 2021 as businesses continued to grapple with the persistent operative challenges including the malfunctioned supply chains, acute limitedness of skilled workforce, higher input prices and unavailability of raw materials.

According to the initial estimate by the Office for National Statistics (ONS), the UK GDP grew by 0.1% in October as against a rise of 0.6% in the month of September. This has been the weakest pace of economic expansion in the last three months as industry-wide disruptions obstructed growth prospects.

On a year-on-year basis also, the British economy witnessed a lower-than-expected growth of 4.6% in October, making it the month of lowest growth in the last seven months.
With such a downcast rate of economic expansion, the quarterly GDP growth is highly likely to remain subdued as October has not reflected the repercussions of the Omicron variant of Covid-19 (SARS-CoV-2) virus. The aftereffect of recently reimposed mask mandates, alongside the Downing Street administration shifting to Plan B to contain the spread of virus has somewhat affected the normalcy in the markets, as well as the cross-border trade.

As European nations continue to witness the surge in the number of infections associated with the Delta variant, and erupting cases related to the Omicron variant, the likelihood of an upbeat economic expansion has categorically decreased. With the recent gain in the national economy, the UK GDP stands 0.5% lower as compared to the pre-Covid levels seen in the month of February 2020, the last month in which functions were not affected by lockdown and precautionary restrictions.

Investors’ misery has certainly escalated after seeing basic growth. The size of GDP can also witness a marginal contraction if the anticipated surge in demand and subsequent spending during the Christmas-bound period fails to catalyse the economic functions.

The UK trade deficit narrowing considerably in the month of October partly relieved the market participants, as it came down to GBP 2.027 billion from the eight-month high level of GBP 2.777 billion. As per the estimates of ONS, a substantial jump in the volume of exports driven by a rise in exports to the non-EU countries helped in partly counterbalancing the quantum of imports.
Exports grew by 1% as goods volume increased 1.6%, while exports of services rose by 0.4%. A moderate drop in the volume of imports also supplemented the overall balance of trade with the shortfall witnessing a contraction of GBP 750 million.

As far as the GDP growth is concerned, the operative difficulties and the hardships due to reimposition of certain restrictions, border control measures and other extended consequences of the Omicron variant are going to impact the pace of economic expansion in November, as well as December.

A higher-than-anticipated activity in the manufacturing, services and construction sectors could help in offsetting the jittery and slippage arising due the market-wide challenges faced by the businesses and the aftereffects of renewed Covid worries across the European region.

A consequential appreciation in the face-to-face appointments at the general practitioner (GP) surgeries in England bolstered the services output in October, as the comprehensive contribution through human health activities rose by 3.5%. Surprisingly, the overall services output has reached its pre-Covid levels, noticing a growth of 0.4% in October of 2021.

The consumer-facing services as enterprises operating within the hospitality industry, mainly the accommodation and food services continued to witness repeated disruptions.

As a result of persisting weakness, the economic output of consumer-facing services still stand 5.2% lower as compared to the February 2020 levels, while all other services are hovering 1.4% over the pre-pandemic levels.

As the national economic output of Britain remains largely dependent on the services sector, a sharp bounce back in the consumer-facing activities is required for further upswing in the GDP levels from here. In October itself, the consumer-facing services saw a growth of 0.3% which, mostly steered by the 30.4% appreciation in travel activity, reservation services, alongside 8.1% surge in the repair of motor vehicles and wholesale and retail trade.

On the contrary, a 7.5% slide in the output from food and beverage services partially counterbalanced the overall growth from consumer-facing services. The UK GDP needs a sharp revival in travel agency, tour operator, and reservation services and air transport services as both the verticals remain 50.1% and 66.2% lower as compared to their respective pre-pandemic levels.

About Lisa Baker, Editor 2359 Articles
Lisa Baker is the Editor of Always Finance, and writes about Business, Finance Technology and Healthcare. Lisa is also the owner of Need to See IT Publishing.