UK economic growth slows as supply chain problems hinder recovery

The Office for National Statistics (ONS) said consumer spending increased as Britain continued to emerge from lockdown.

But that was offset by falls in other areas of the economy, leaving growth for the three months at 1.3%.

It means the economy is 2.1% smaller than in the final three months of 2019, before the coronavirus pandemic hit.

Sterling fell to its lowest level of 2021 against the dollar on Thursday following the news.

Grant Fitzner, ONS chief economist, said service growth expanded, helped by house buyers rushing to do deals before the end of the stamp duty holiday.

"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," he said.

Growth slowed significantly from a 5.5% rise recorded between April and June when many Covid restrictions were lifted.
The ONS said that the UK expanded by less than it initially thought in July and August, leading them to revise down growth figures for both months.

"What happened earlier in July and August was that we had the pingdemic." said Sarah Hewin, head of research for Europe and the Americas at Standard Chartered. "And that ended up essentially holding the economy flat."
In contrast, the economy grew by 0.6% during September.

Chancellor Rishi Sunak said the latest figures showed his economic policies were working.
"The economy continues to recover from Covid and thanks to schemes like furlough, the unemployment rate has fallen for eight months in a row and we're forecast to have the fastest growth in the G7 this year," he said.

Business leaders expressed caution about the outlook, with Suren Thiru, head of economics at the British Chambers of Commerce, saying the data points to the UK economy "only likely to return to its pre-pandemic level next year, behind many of our international competitors".

"Although monthly output rebounded through the quarter from July's contraction this is more likely to reflect a temporary boost from restrictions easing, rather than a meaningful improvement in the UK's underlying growth trajectory," he said.

The ONS highlighted the impact of supply chain problems, which businesses have been struggling with for several months as they adjust to labour shortages and disruption at container ports.

Stocks held by manufacturers fell during the July-to-September quarter, the ONS said. And a slowdown in new UK car sales was in large part due to a global shortage of microchips. The ONS also noted that retailers were reporting "lower than usual" stock for the time of year.

'Shortages remain an issue'

The latest growth figures were weaker than many economists had expected, and Paul Dales, chief UK economist at Capital Economics, said the data suggested "the best of the recovery is now behind us".

"We think progress is going to slow over the next six to nine months as shortages remain an issue and the real spending power of businesses and households is reduced by higher taxes and rising utility prices," he added.

The economic slowdown comes after the Bank of England held off from raising interest rates last week despite rising inflation.

It wanted to see how the jobs market and wider economy was holding up after the end of furlough support.
The Bank had already said it expected growth to slow to 1.5% in the July-to-September quarter and forecasts it will pull back further to 1% in the final three months of 2021.

Mr Dales said the slower growth probably would not stop the Bank raising interest rates slightly in December, but could limit further rises next year.

Separately, Britain's trade deficit in goods widened by £9bn in the third quarter to £42.3bn, the ONS said, driven by rising imports from EU and non-EU countries as exports fell - especially to non-EU countries.

SOURCE: BBC NEWS