Sluggish UK economy falls behind the G7 pack again

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LONDON (Businesshala) – Britain’s economic recovery from the coronavirus pandemic lagged that of other prosperous nations in the July-September period, according to official data on Thursday, underscoring the interest rate dilemma facing the Bank of England.

FILE PHOTO: People are seen walking along the south side of the River Thames in the City of London financial district, amid the outbreak of the coronavirus disease (COVID-19), in London, Britain March 19, 2021. Businesshala/Henry Nichols

GDP grew by 1.3%, the weakest growth in three months since Britain’s lockdown in early 2021.

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A Businesshala poll by the Bank of England and economists had forecast an expansion of 1.5%.

The Office for National Statistics said Britain’s economy remained 2.1% smaller than at the end of 2019, a major decrease compared to the peer group of seven countries Germany, Italy and France.

The United States has already passed its pre-crisis size. Canada and Japan, the other G7 members, have yet to report growth data for the third quarter, but have already gained more ground by the second quarter than the UK achieved by the third quarter.

Thursday’s data showed British GDP grew by 0.6% in September – stronger than the 0.4% forecast in a Businesshala poll – but estimates for previous months were revised down less.

GDP declined 0.2% in July, a bigger drop from the 0.1% drop previously estimated, while output grew only 0.2% in August, weaker than the 0.4% originally reported.

Suren Thiru, head of economics at the British Chambers of Commerce, said: “Although monthly output improved during the quarter from the July contraction, the easing of restrictions is more likely to reflect a temporary increase.”

Rate of interest

The BoE said last week that, as it kept interest rates on hold, recent economic growth was weaker than it expected and it would keep a close eye on labor market conditions after the government’s job protection scheme ends on October 1. ,

Paul Dales, an economist at Capital Markets, a consultancy, said he expects the 0.6% growth recorded in September to fade quickly.

“That’s why we suspect the Bank of England will raise interest rates by more than 0.50% next year,” he said.

The BoE stunned financial markets last week when it kept its benchmark rate at an all-time low of 0.1%, even as it forecast inflation to hit nearly 5%, more than double its 2% target. was more than

September’s GDP growth was helped by strong output in the health sector as people went back to their doctors after falling during the pandemic, leading to a 0.7% increase in the services sector from August.

But for the fourth month in a row, industrial production declined by 0.4% due to a reduction in gas distribution.

The world’s fifth-largest economy shrank about 10% in 2020, which is more than most other large wealthy countries.

But the International Monetary Fund predicted in October that it was on track to have the fastest expansion of any G7 country in 2021, when it was expected to grow 6.8%.

However, the quick bounce back from the lockdowns seen in the spring paved the way for slower growth in the summer due to a combination of rising COVID-19 cases, global supply chain problems and post-Brexit shortages of some workers.

The ONS reported a decline in underlying inventory for manufacturers in the July-September period, which it said reflects some of the more recent supply chain challenges.

Separate data shows the UK’s freight deficit widened by £9bn to £42.3bn in the third quarter, driven by rising imports from EU and non-EU countries as exports declined – notably exclusively for non-EU countries.

Written by William Schomberg; Editing by Andy Bruce, Kate Holton and Gareth Jones

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