Business

UK growth slows sharply in third quarter amid supply chain woes

The ONS said the UK economy expanded by 1.3 per cent between July and September, down from growth of 5.5 per cent in the previous three months.

UK economic growth slowed sharply between July and September as supply chain problems hampered recovery from the pandemic, official figures have shown.

The Office for National Statistics (ONS) said the economy expanded by 1.3 per cent between July and September, down from growth of 5.5 per cent in the previous three months.

The ONS said growth picked up in September to a better-than-expected 0.6 per cent but revisions showed the performance was worse than first thought in July and August, with signs the global supply chain issues were taking their toll.

Data showed a 0.2 per cent contraction in July, against the 0.1 per cent fall previously estimated, while August showed growth of 0.2 per cent, against the 0.4 per cent initial reading.

Car sales, in particular, have been hit by a shortage of semiconductor chips, while construction projects were delayed amid difficulties in getting materials, according to the ONS.

The third-quarter result means the economy is now 2.1 per cent below where it was before the pandemic struck.

On a month-by-month basis, the economy in September was 0.6 per cent below pre-pandemic levels seen in February 2020.

But the figures showed the UK's economy continues to be outpaced by many of its rivals in the G7 group of countries - with the UK recovery lagging behind all except Spain, and the US already back above pre-pandemic levels.

Chancellor Rishi Sunak said: "As the world reopens we know that there are still challenges to overcome."

The ONS said gross domestic product (GDP) in September was buoyed by the health sector, with trips to the doctor increasing ahead of the start of the flu season and as people returned to offices and schools reopened.

Grant Fitzner, chief economist at the ONS, said: "Lawyers also had a busy month as house buyers rushed to complete purchases before the end of the stamp duty holiday.

"However, these were partially offset by falls in both the manufacture and sale of cars."

It comes after the Bank of England held off from raising interest rates last week despite soaring inflation.

It wanted to see how the jobs market and wider economy was holding up after the end of furlough and due to the supply problems before increasing rates from 0.1 per cent.

The Bank forecasts growth will pull back further to 1 per cent in the final three months of 2021, while inflation will jump to around 5 per cent by next April.

A sector-by-sector breakdown of GDP for the third quarter showed services output rose 1.6 per cent between July and September, down from 6.5 per cent in the second quarter, while manufacturing saw a 0.3 per cent decline with a 1.5 per cent contraction in the construction industry.

Services activity slowed despite a boost for hospitality and the arts from the lifting of all restrictions in July, with growth held back by weak consumer spending and falling retail sales.

However, the ONS said there was a 2.9 per cent jump in fuel sales by volume in September amid panic-buying on forecourts caused by some petrol station closures due to driver shortages.

Martin Beck, from the EY Item Club, said growth will continue to slow over coming quarters, adding: "With the easy gains from reopening the economy exhausted and policy support being withdrawn, the recovery has entered a much tougher phase.

"In addition, the situation has been made harder by the escalation of supply chain disruption and the increases in inflation, which will eat into household spending power."

Separate official figures also published on Thursday showed the UK's trade in goods and services deficit widened by £3.5bn to £4.3bn in the third quarter, as goods exports to non-EU countries fell while imports - particularly of fuel - from non-EU countries increased.

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