Economy in record third quarter surge, but fears mount over lockdown 2.0 hit
By Holly Williams, PA Deputy City Editor
The UK economy surged out of recession with record growth of 15.5% between July and September, but official figures show the recovery slowed sharply even before the second lockdown.
The Office for National Statistics (ONS) said the economy grew 1.1% month-on-month in September as the recovery since the nadir of the recession in April began to run out of steam.
Data shows that at the end of September, the economy was still 8.2% below levels seen in February before the crisis struck despite the record-breaking jump in gross domestic product (GDP) in the third quarter.
Chancellor Rishi Sunak warned growth is likely to slow further over the fourth quarter and said there are “hard times ahead”.
Experts are forecasting a sharp fall in GDP this month caused by the second English lockdown, amid fears of a double-dip recession if there are at least two successive quarters of falling output.
Mr Sunak said: “Today’s figures show that our economy was recovering over the summer, but started to slow going into autumn.”
“The steps we’ve had to take since to halt the spread of the virus mean growth has likely slowed further since then.”
The ONS figures show growth bounced back in the third quarter from the 19.8% contraction in April to June, which plunged the UK into a record-breaking recession.
But the September slowdown was more severe than expected, with the ONS confirming there was a “loss in momentum across all main sectors” since June.
Bank of England Governor Andrew Bailey said the figures reveal the “huge gap” between output now and levels seen before the pandemic.
Speaking at a Financial Times event, he said news of a potential vaccine is “encouraging for the economy”, but added there is “still a long way to go”.
The pound fell to 1.32 US dollars and was 0.6% down at 1.1 euros after the GDP data.
The Bank of England last week forecast the economy will shrink by 2% in the final quarter of the year.
It believes the UK will avoid plunging back into recession, pencilling in growth of 2.4% in the first quarter of 2021.
But the economy’s performance will depend heavily on restrictions to control the spread of the virus.
Samuel Tombs, at Pantheon Macroeconomics, cautioned growth will probably not recover to September’s level until next spring.
Howard Archer, chief economic adviser to the EY Item Club, said he believes growth could tumble by around 4% in the fourth quarter.
“There seems little doubt that a renewed national lockdown will cause the economy to contract again in the fourth quarter – and, very possibly, by an appreciable amount,” he said.
Experts agree the Chancellor’s move to extend the furlough scheme to the end of March should help limit the economic damage, with the Bank having also pumped in another £150 billion of quantitative easing.
However, the ONS revealed the UK recovery is lagging behind European rivals.
GDP in the third quarter was still 9.7% smaller than at the end of 2019 – twice as big as the falls in Italy, Germany and France and nearly three times the size of the US drop, according to the ONS.