People look out to the City of London financial district from a viewing platform in London, Britain, October 22, 2021. REUTERS/Hannah McKay
December 10, 2021
By William Schomberg and Andy Bruce
LONDON (Reuters) -Britain’s economy barely grew in October, even before the emergence of the Omicron coronavirus variant, further denting expectations that the Bank of England will raise interest rates next week for the first time since the pandemic struck.
Gross domestic product edged up by a weaker than expected 0.1%, slowing sharply from monthly growth of 0.6% in September.
That meant the economy remained 0.5% smaller than in February 2020, just before Britain went into its first COVID-19 lockdown, the Office for National Statistics said on Friday.
“We’ve always acknowledged there could be bumps on our road to recovery,” finance minister Rishi Sunak said.
“But the early actions we have taken, our ongoing 400 billion pound economic support package and our vaccine programme mean we are well placed to keep our economy on track.”
Economists polled by Reuters had forecast monthly GDP growth of 0.4%.
Maike Currie, investment director at Fidelity International, said Britain’s fast-rising inflation rate and the spread of Omicron might mean the world’s fifth-biggest economy starts to shrink again.
“The Bank of England will be acutely aware that it’s harder to dig an economy out of recession than to cool rising inflation, which makes an interest rate rise next week increasingly unlikely.”
Sterling dipped after the ONS figures were published as investors took them as another reason for the central bank not to follow through on its signals in recent months that it would start to raise borrowing costs in the face of growing inflation pressure.
The Bank of England is currently holding its December policy meetings and is due to announce its decision next Thursday.
Britain’s economy bounced back strongly earlier this year from its nearly 10% slump in 2020 when the pandemic hit.
But the rebound slowed in recent months as supply chain problems hit manufacturers and it is expected to lose more momentum because of new COVID-19 rules to slow the spread of the Omicron variant.
October’s meagre growth was propped up by a continued rise in face-to-face appointments at doctors’ surgeries in England, which had fallen sharply during the pandemic, contributing to a 0.4% rise in output in Britain’s dominant services sector.
By contrast, industrial output fell 0.6%, hit by big falls in electricity and gas and in mining and quarrying.
The manufacturing sector flat-lined as the sector struggled with supply chain problems and staff shortages.
Construction fell by the most since April 2020, down by 1.8% from September, also hit by a shortage of supplies.
Separately, the ONS released trade data showing that Britain’s goods trade deficit narrowed to 13.9 billion pounds in October from 14.7 billion pounds in September.
($1 = 0.7570 pounds)
(Writing by William Schomberg and Andy BruceEditing by David Goodman)
