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.
Watch: What is inflation and why is it important?
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.”
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
