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Britain’s recovery from the Covid-19 pandemic has been weaker than originally thought and is the only member of the G7 group of leading industrialized nations where output is still below its pre-crisis level.
The Office for National Statistics said the UK economy shrank by 0.3% in the three months ending in September – compared to the original estimate of a 0.2% contraction – and growth has fallen in every quarter stretching back to the third quarter of 2021.
As a result, UK gross domestic product is now forecast to be 0.8% lower in the three months ending in September this year than in the final three months of 2019 – the period immediately before the start of disruption due to Covid.
Earlier, the ONS estimated that the UK was operating at 0.4% below its pre-pandemic level, and according to the latest data it is now the only G7 country yet to recover ground lost when it locked down the global economy in 2020.
Among other G7 members, output in the US is currently above 4.3% levels at the end of 2019, and Canada is up 2.7%, Italy 1.8%, France 1.1%, Japan 0.9% and Germany 0.3% higher.
Gabriella Dickens, UK analyst at Pantheon Macro, said the UK’s underperformance largely reflected weakness in real household spending, which was down 3.2% in the third quarter of 2022 compared with the fourth quarter of 2019, compared with an average increase of 1.6% across the country. Other G7 economies.
“A relatively muted recovery in employment, large price rises, and the fact that households in Britain are less willing to lower their savings rate than those abroad have led to a relative decline in household spending in Britain.”
A breakdown of the ONS national accounts release showed a sharp rise in the UK household savings rate in the three months to September, indicating that consumers are taking precautionary measures to strengthen their defenses against an expected recession.
The Bank of England believes that the contraction of the economy in the third quarter is the start of a long recession that will last throughout 2024. Jeremy Hunt, the chancellor, is planning measures in his budget to boost growth but believes the recession is deepening. will be less severe than in the past.
Darren Morgan, ONS director of economic statistics, said: “Our revised figures show that the economy performed slightly less well than previously estimated last year, with manufacturing and electricity production significantly weaker.
“Although at a slower rate than in the previous two quarters, household incomes continued to fall in real terms, while – taking inflation into account – household spending fell for the first time since the final Covid-19 lockdown in the spring of 2021.”
Martin Beck, chief economic adviser at EY Item Club, said: “The quarterly drop in GDP is unlikely to prove a one-off. Retail weakness, a weak set of PMIs (Purchasing Managers’ Indicators) and disruptions from industrial action all point to the economy likely to contract again in the fourth quarter.”
Beck said he expects the slowdown to last into the first half of next year as higher inflation affects household spending power and tighter monetary and fiscal policy activity.
“That said, the economy is not beyond support. Households have room to save a smaller proportion of income, and on some measures, they have yet to dip into the £200bn+ of extra savings accumulated during the Covid pandemic. So consumer spending is unlikely to fall to the same extent as real income. And inflation is expected to decline over the next year period before returning to growth after 2023.”
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