Broken supply chain helps to stall recovery

BRITAIN’S economy is running out of steam, with third quarter growth falling to 1.5 per cent, data from the Office for National Statistics is expected to show.

It will say this week that growth fell from 5.5 per cent in the second quarter due to the supply chain crisis and manpower shortages affecting several sectors of the economy.

Paul Dales, chief UK economist at Capital Economics, said the 1.5 per cent growth seen in the third quarter will make things appear to be better than they really are. He added the supply chain disruption that hit the economy in the third quarter will carry on into the fourth, further lowering growth.

“We doubt that GDP was boosted by either industry or construction.we think industrial production was flat and the further decline in the construction sector in September has led us to pencil in a 0.5 per cent month-on-month drop in construction output,” he said.

“We already know retail sales fell 0.2 per cent month-onmonth and we suspect the rise in Covid-19 cases and supply shortages restrained services activity elsewhere.”

ING developed markets economist James Smith said consumer demand, which has powered the economy through previous crises, is unlikely to strengthen and boost growth in the fourth quarter.

“The UK’S recovery is undoubtedly slowing, even if GDP will reach pre-virus levels in the next couple of months. Inflation is set to peak at around 4.5 per cent next April, linked to higher household energy prices,” he said.

“Meanwhile, it’s far less clear that wage growth will keep pace, despite often-cited shortages of certain occupations. And while savings levels remain pretty elevated, individuals have shown little appetite to spend them.”

On Thursday, the Bank of England decided against raising its bank rate. Any change would have been the first since early in the pandemic. Its Monetary Policy Committee held the rate at 0.1 per cent despite the Bank signalling it would have to rise to combat rocketing inflation.

However it did warn rates were likely to rise over the coming months. Jefferies European economist Marchel Alexandrovich said it could come as early as next month, depending on the unemployment and inflation data.

“Inflation is now expected to reach 4.5 per cent at the end of the year and approach 5 per cent in the first quarter, data which clearly makes the majority on the MPC extremely uncomfortable,” he said.