The UK economy grew at the fastest pace since records began in the third quarter, according to the Office for National Statistics, bouncing back from an economic slump during the first six months of 2020 as the Covid-19 pandemic took hold.
However, growth of 15.5 per cent in Q3 wasn’t enough to fully reverse the economic impact of the contraction in the economy caused by the coronavirus and compared with pre-pandemic levels in February, the UK economy was 8.2 per cent smaller.
The third quarter saw the period when Covid-19 restrictions had been most relaxed since the pandemic began, characterised by falling infection rates and the government’s ‘Eat Out to Help Out’ scheme to support restaurants.
Source: Office for National Statistics (ONS)
Laith Khalaf, financial analyst at AJ Bell, said while such a strong rebound in the economy was positive “we should keep the champagne on ice for now”.
He said: “The summer boom was turbo-charged by the Eat Out to Help Out scheme, while the furlough scheme worked its magic by keeping unemployment under wraps.
“But if you shut down an economy and then open it up, it’s not hugely surprising that you get a huge seesaw effect in quarterly GDP numbers.”
He added: “A swollen summer of economic activity hasn’t repaired the damage done in the first half of year though and the new lockdown means the UK can expect to end 2020 significantly behind where it started.”
Nevertheless, commentators warned that the fourth quarter would not likely see as high levels of growth given the resurgence of the coronavirus and weaker economic data.
A new lockdown was announced at the end of October, alongside an extension of the furlough scheme until March and further quantitative easing (QE) from the Bank of England.
Ongoing negotiations over a trade deal with the EU as the Brexit ‘transition period’ ends is another point of concern.
While the UK grew by a record amount in the third quarter overall, there were signs that the momentum was starting to run out of steam with growth of just 1.1 per cent in September down from 2.2 per cent in August.
Source: Office for National Statistics (ONS)
Thomas Pugh, UK economist at Capital Economics, said the September data showed that the recovery “was rapidly running out of steam at the end of Q3, even before tougher restrictions and the second lockdown were imposed”.
“September and Q3 feel not just like old news but like ancient news,” he said. “We already know that GDP will struggle to rise in October as tighter restrictions were imposed and that it will take a hammering in November as the effects of the second Covid-19 lockdown are felt.”
As such, Capital Economics’ Pugh said he was projecting a 3.5 per cent contraction to UK GDP during Q4.