Economy  

UK economy grew above pre-pandemic levels before Omicron

UK economy grew above pre-pandemic levels before Omicron

The UK economy grew to above pre-pandemic levels in November - the first time this has happened since Covid-19 hit.

Gross domestic product grew by 0.9 per cent, which was higher than expected and 0.7 per cent higher than in February 2020.

In the previous month, October 2021, GDP grew by just 0.1 per cent so November's figure marked a strong acceleration.

The services sector, which makes up most of the UK economy, grew by 0.7 per cent and is now 1.3 per cent above its pre-pandemic levels, as is the construction sector which grew up 3.5 per cent in November.

Despite the more positive data, experts warned the arrival of the Omicron variant in the UK at the end of November may have weakened this growth in December.

Richard Carter, head of fixed interest research at Quilter Cheviot said: “While major restrictions were avoided, there’s no doubt that consumers would have been exercising more caution than expected in December, with businesses in the hospitality and leisure sector paying the price.”

Likewise, he added, the UK economy would have lost a significant number of working days in December due to isolations.

“Combine this with a cost of living crisis that is quickly becoming the most important political issue and you have a recipe for a tough economic environment over the winter months. 

“We’ve seen weaker than expected Boxing Day sales recorded and this could well be a barometer for weak consumer spending going into 2022.”

There were still grounds to be optimistic about the UK economy, said Daniel Casali, chief investment strategist at Tilney Smith & Williamson.

“First, new Covid cases appear to be peaking and isolation rules have been relaxed since December,” he said, "and the rapid pace of the Omicron wave could boost natural immunity and lower the risk of further government restrictions."

Second, he said consumers seemed confident to spend, which is underpinned by a recovering labour market. 

“Third, the financial wherewithal is there to sustain the services expansion and support pent-up demand. UK net household wealth in the third quarter stood at 3.5 times take-home pay, higher than the long-term average of 2.9 times. More wealth increases the ability for consumers (in aggregate) to raise expenditure from previous capital gains and/or raise borrowing.

“On balance, we see the consumer recovery and the reduced risk of government restrictions creating an opportunity for domestically orientated UK stocks to outperform in the coming months.”

Melanie Baker, senior economist at Royal London Asset Management, said: "An outperforming vaccination programme and high household and corporate aggregate cash levels should help the economy see reasonable growth rates overall.

"Prospects for business investment to drive further recovery still look good once uncertainty recedes."

sally.hickey@ft.com