Figures from the Office for National Statistics [ONS] show that UK GDP grew by 0.9 per cent between October and November last year, surpassing pre-pandemic levels.
The growth was higher that what economists had predicted, having forecast that GDP would expand by 0.4 per cent in November. It also saw the economy stand at 0.7 per cent greater than in February 2020.
Chancellor Rishi Sunak said the better-than-expected growth was “a testament to the grit and determination of the British people”, but there is caution since economic data that is set to be published from after the emergence of the Omicron variant will show a subsequent slowdown.
News of the variant’s existence broke toward the end of November, with the government bringing Covid Winter Plan B into force from December 8.
Pantheon Macroeconomics’ chief UK economist, Samuel Tombs, commented that GDP “almost certainly dropped” over the remainder of December as households “hunkered down” in the wake of new restrictions and consumer services expenditure consequently dropped.
On the positive side, ONS chief economist, Grant Fitzner, said that in the month preceding Omicron, architects, retailers, couriers and accountants had a “bumper month”, while the construction sector also recovered as more raw materials became readily available after shortages.
Construction enjoyed 3.5 per cent growth during October to November 2021, while manufacturing output also increased according to Capital Economics.
Furthermore, Tombs was optimistic that the Omicron variant looks “set to fade almost as quickly as it arrived” due to the success of the booster campaign and said that economists expected ministers to lift Plan B rules on January 26 when they are due to lapse.
This, Tombs added, should pave the way for GDP to “bounce back” again in February, but other economists urged caution.
Yael Selfin, chief economist at KPMG UK, warned that growth could “slow in 2022” overall as the economy could no longer “rely on the Covid rebound effect” to provide momentum.
Selfin also pointed out that although the government has increased the National Living Wage for over-23s by 6.6 per cent, the effects of the National Insurance hike and higher utilities bills coming in from April - combined with inflation - would limit the spending power of many households. Meanwhile, labour shortages and supply chain bottlenecks could limit production.
On energy prices, it is expected that Ofgem will raise the energy price cap in April, following a significant rise in the price of wholesale gas over 2021.
After having raised its key interest rate to 0.25 per cent in December, the Bank of England expects inflation to reach six per cent by the spring, exacerbating the financial burden on many.
Photo by Ed Robertson on Unsplash
