UK economic growth slows amid supply chain crisis

The UK’s economic recovery slowed sharply between July and September as deepening disruption in supply chains and a shortage of workers held back growth, official figures show.

Total output grew 1.3 per cent in the third quarter of the year, lower than the 1.5 per cent analysts had forecast and down from 5.5 per cent in the previous three months.

The slowdown means gross domestic product (GDP) – a measure of all the goods and services produced – remained 2.1 per cent smaller between July and September than it was before the pandemic.

Analysts said the UK had regained its position as a “laggard” among major wealthy economies. The US is 1.4 per cent ahead of its pre-pandemic level of gross domestic product (GDP), while France is 0.1 per cent down on pre-Covid levels, Italy is 1.4 per cent down and Germany 1.5 per cent.

While many nations have suffered from long delays to shipping and shortages of workers in key areas such as logistics, the UK has been particularly exposed thanks to an exodus of workers and disruption to trade after Brexit.

Farmers, retailers, builders and hospitality firms in the UK have all sounded the alarm about rising costs in recent weeks.

Growth picked up to 0.6 per cent in September – slightly faster than the consensus forecast. However, 0.5 percentage points of that were attributed to the health sector and represented an increase in face-to-face GP appointments.

New data showed that the economy grew slower in July and August, though, with signs that global supply disruption was having an impact.

Output shrank 0.2 per cent in July, against the 0.1 per cent fall previously estimated, while August showed growth of 0.2 per cent, down from 0.4 per cent.

The recovery varied in pace across different parts of the economy. A boom in “staycations” helped the services sector to expand 1.6 per cent over the quarter. Hotel bookings jumped 30 per cent as holidaymakers stayed in the UK rather than braving constantly changing Covid travel restrictions.

However, hoteliers, restaurateurs and publicans have warned that they are now struggling to absorb hefty rises in prices for ingredients, as well as dealing with a severe shortage of staff and unreliable deliveries.

Household spending remains 4.4 per cent lower than it was before the pandemic began, an indication that some people may still be wary of the virus or fearful of a return to lockdown measures.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, pointed to lower household spending and Brexit as a key drivers of the country’s faltering economic performance.

“We think relatively high levels of virus transmission in the UK, alongside the cliff edge in government support at the end of Q3, helps to explain British households’ relative caution,” he said.

“Meanwhile, Brexit should take some of the blame for the abysmal performance of UK exports. British manufacturers have lost considerable market share in global markets.”

The volume of goods and services exports fell by 1.9 per cent quarter-on-quarter in Q3 and was 22.2 per cent below the level reached in October to December 2019.

Manufacturing suffered more acutely from problems getting hold of supplies and finding enough staff to meet demand. The broader production sector, which includes manufacturing, shrank 0.8 per cent compared to the previous quarter.

Car manufacturing has been particularly badly hit by a shortage of semiconductor chips, with output down 8.2 per cent in the third quarter.

Construction has been hit hard by a spike in materials costs and a lack of skilled labour. The sector slumped 1.5 per cent over the quarter but showed signs of a rebound in September.

Grant Fitzner, chief economist at the ONS, said growth in September had been driven by more visits to GP surgeries in England.

“Lawyers also had a busy month as house buyers rushed to complete purchases before the end of the stamp duty holiday. However, these were partially offset by falls in both the manufacture and sale of cars,” he said.

Chancellor Rishi Sunak claimed the new data demonstrated that the government’s 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.

Analysts painted a less positive picture. Suren Thiru, head of economics at the British Chambers of Commerce, said: “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.”