GDP grew by just 0.1% in October, below the 0.4% that economists had forecast, new data from the Office for National Statistics (ONS). Photo: Richard Baker / In Pictures via Getty Images
The UK economy almost flatlined in October, adding to worries about the recovery from the coronavirus pandemic.
New data released by the Office for National Statistics (ONS) on Friday showed that GDP grew by just 0.1% in the month, below the 0.4% that economists had forecast, thanks to ongoing supply chain disruptions and staff shortages.
This remained below the pre-pandemic level of 0.5% in February 2020, and suggests that the UK economy was struggling even before the discovery of the Omicron variant in late November.
The ONS said that services output grew back to its levels before the start of the health crisis, growing 0.4% in October, driven by human health activities due to a rise in face-to-face appointments at GP surgeries in England.
Output in consumer-facing services grew by 0.3% on the month mainly because of an 8.1% increase in the wholesale and retail trade and repair of motor vehicles and motorcycles sector. But output at restaurants and hotels fell by 5.5%.
Meanwhile, production output decreased by 0.6% during the period, with electricity and gas down by 2.9%, mining and quarrying down by 5.0%, and construction contracting 1.8% in the month.
GDP grew just 0.1% in October. Chart: ONS
“Growth disappointed in October, reinforcing concerns about the resilience of the UK’s economic recovery to the Omicron variant and the impact of further restrictions,” Alpesh Paleja, CBI lead economist, said.
“We need to create consistency in our approach and build confidence by reducing the oscillation between normal life and restrictions as we learn to live with the virus and its variants.
“Meanwhile, supply pressures remain acute and further rises in inflation are looming. We expect growth to build further momentum ahead, but more action is needed to address longer-term challenges, including “scarring” from COVID and poor productivity.”
Chancellor Rishi Sunak said: “We’ve always acknowledged there could be bumps on our road to recovery, but the early actions we have taken, our ongoing £400bn economic support package and our vaccine programme mean we are well placed to keep our economy on track.”
However, businesses are warning that the government’s new Plan B restrictions will mean a further hit for growth and affect jobs unless the Treasury provides more support, including the restart of the furlough scheme to help hard-hit sectors.
As part of the new measures announced this week by UK prime minister Boris Johnson, people must work from home where possible from Monday, and face masks will be a legal requirement in most public indoor areas such as theatres and cinemas from Friday.
However, there will be exemptions for eating and drinking in hospitality venues.
Vaccine passports will also be needed to attend large, potentially crowded venues such as nightclubs from next week.
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Paul Dales, chief UK economist at Capital Economics, said: “at such low rates of growth, the government’s ‘Plan B’ COVID-19 restrictions could be the difference between the economy growing or contracting in December.
“We estimate that the ‘Plan B’ COVID restrictions may reduce GDP by 0.0-0.5pc in December. That means it is touch-and-go whether the economy will grow or contract this month. Against that background, we doubt the Bank of England will raise interest rates next Thursday.”
Economists are predicting that the Monetary Policy Committee (MPC) will take no action on the current 0.1% rate when it meets on 16 December amid concerns that an increase would add pressure on the economy.
Traders have also cut their bets on a rise in recent weeks, with foreign exchange positioning implying a 36% chance of an increase in rates, which previously was as high as 70% last month.
Elsewhere, Rory Macqueen, principal economist at NIESR said: “Supply chain issues may have been a factor in slower than expected October growth rate: something which will be compounded by the emergence of the omicron variant, which will cause a rise in social distancing, both mandated and voluntary, in December and early 2022. Its overall economic impact is likely to be smaller than the first and second full lockdowns, but will delay the return of GDP to its pre-COVID level.”
“At this stage in the recovery, growth of 0.1% in October will be concerning to policy makers,” Jonathan Gillham, chief economist at PwC UK, said. “If the Omicron variant plays out in line with initial concerns there could be further problems in the months ahead. Nonetheless, there are some signs of business confidence – activities of temporary recruitment agencies grew rapidly reflecting strong labour market performance and households are booking holidays.
“There is still considerable optimism about the recovery and this may yet still drive growth in the months ahead. However, this optimism is conditional on inflation and a potential interest rate rise not hitting household spending levels. Rising inflationary expectations, a weak pound and exposure to new COVID variants are seen as the key risks to the economy over the coming months.”
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
