Graeme Wearden 

UK economy posts record growth, but slows in September – as it happened

Britain’s economy returned to growth in the third quarter, but September slowdown worries economists
  
  

A Covid-19 social distancing public notice on a street in Birmingham, Britain, 13 September 2020.
A Covid-19 social distancing public notice on a street in Birmingham, Britain, 13 September 2020. Photograph: Andy Rain/EPA

Afternoon summary

Right, time to wrap up.

Growth across the UK economy has faded after a record recovery over the summer, raising fears of a renewed contraction in the last three months of the year.

UK GDP expanded by 15.5% in July-September, data released this morning showed, the fastest increase on record as the economy emerged from its spring shutdown.

But growth slowed during the summer, with GDP expanding by just 1.1% in September - weaker than economists expected. That followed 9.1% in June, 6.3% in July, and 2.2% in August.

Jonathan Athow, the deputy national statistician for economic statistics, explained:

“The return of children to school boosted activity in the education sector. Housebuilding also continued to recover, while business strengthened for lawyers and accountants after a poor August.

“However, pubs and restaurants saw less business, after the ‘eat out to help out’ scheme ended, and accommodation saw less business after a successful summer.”

The Office for National Statistics also pointed out that the UK’s decline was much worse than the US, Germany, France or Italy so far this year.

Despite recovering in Q4, the UK economy is still over 9% smaller than before the pandemic - and the same size as in 2014.

GDP climbed 15.5% during the summer months as lockdown eased
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Guardian graphic | Source: ONS

Several experts warned that the UK economy is likely to shrink in the last quarter of 2020, with the current lockdown rules hurting hospitality firms badly again.

Jeremy Thomson Cook, chief economist at Equals Money warned:

Services, construction and manufacturing are all between 6-12% below the level they entered this year at....

The fresh lockdown we are currently enduring has raised the risk of a double -dip recession through the beginning of 2021; the UK had started to build momentum but that looks to have dissipated now.”

Chancellor Rishi Sunak said there were ‘hard times’ ahead, and indicated that he would looking at ways to stimulate the economy once the lockdown ends.

He didn’t reveal any details of his plans, telling Sky News:

We want to make sure that we get the economy going strongly coming out of this. We want to make sure we support employment, support people going in to jobs.

We want to help the people who sadly lost their jobs to find new ones. We want to get consumers spending again, people out and about. So we’ll look at a range of things to see what the right interventions are at that time

The pound didn’t take any cheer from the data, and is currently down one eurocent at €1.112, and nearly one cent at $1.313.

European stock markets have taken a breather from their recent strong rally, as vaccine optimism faded a little.

Britain’s FTSE 100 has just closed down 43 points at 6338, a drop of 0.68%, ending an eight-day winning streak

The EU-wide Stoxx 600 lost around 0.75%.

The International Energy Agency struck a cautious note, saying it didn’t expect a Covid-19 vaccine to have a serious impact on oil demand in the first half of 2021.

And in the US, the number of new jobless claims remained worryingly high - at 703,000.

Goodnight. GW

Updated

Financially hard-hit US households have knocked £56m from National Grid’s underlying profits for the first half of the year as the company counts the cost of Covid-19.

The energy firm, which is also a supplier in the US, said the pandemic wiped a total of £117m from its underlying profits compared with last year. The crisis had lowered revenues, raised costs and left more homes unable to pay their bills, it added.

Earlier today, the Bank of England governor cautiously welcomed the encouraging vaccine trial news from Pfizer and BioNTech this week.

Andrew Bailey said it was ‘very encouraging’ , and could lesson the economic damage caused by the pandemic.

The Financial Times has the details:

Speaking at the Financial Times’ Global Boardroom event, the BoE governor said recent news on the efficacy of the vaccine being developed by Pfizer and BioNTech was consistent with the BoE’s assumption that there would be “a gradual and progressive improvement in [economic] conditions that would reflect a gradual advance of treatments”.

“The news is encouraging,” he said, but added: “I think we have to be cautious because there’s still quite a way to go in trialling [a vaccine], in production and distribution, and putting all this into action.”

Back in the UK, high street and travel hub retailer WH Smith is set to close 25 high street stores, affecting nearly 200 jobs, after the coronavirus pandemic pushed the retailer £280m into the red.

The books to paperclips chain said it was likely to permanently close the stores, which are mainly smaller outlets, after sales in its high street business fell 19%.

However, the group’s previously successful travel outlets – in stations, airports and hospitals – have been even worse hit. They recorded a 43% slide in sales in the year to 31 August.

In contrast, sales through the retailer’s main website soared by more than 240%.

In New York, tech stocks are on the rise while other stocks dip back.

  • Dow Jones industrial average: down 29,306 points
  • S&P 500: down 6.4 points or 02% at 3,566.20 points
  • Nasdaq: up 45 points or 0.4% at 11,832

Marios Hadjikyriacos of XM says the investors on Wall Street are facing up to the Covid reality on the ground.

Infection numbers and hospitalizations keep rising in the United States, leading states like New York to reintroduce soft curfews targeting bars and restaurants.

One of president-elect Biden’s covid advisors called for a 4-6 week nationwide shutdown to bring the outbreak back under control, which investors may have interpreted as a taste of what is to come. In other words, it is great that a vaccine is now on the horizon, but markets seem to be absorbing the fact that we won’t get there for several more months and the world economy could remain under severe duress in the meantime.

US jobless claims data released

Meanwhile in America, the number of people filing jobless claims has hit a seven-month low, but remains painfully high as the pandemic rages.

Around 703,000 new ‘initial claims’ for unemployment benefit were filed last week (or Election Night in America Continued” week).

That’s the lowest since March, but still above the peak during the 2008/09 crisis [this year, initial claims peaked at over 6.8m].

Another 298,000 people (often freelances or ‘gig economy’ workers) applied for help under the ‘Pandemic Unemployment Assistance’ programme.

In total, over 21 million Americans are on various unemployment support packages, points out Heather Long of the Washington Post:

This highlights that America’s labor market is still weak, with the alarming rise in Covid-19 cases hurting the economy.

Worryingly, the Pandemic Unemployment Assistance program is due to expire on December 31st, intensifying the need for a new stimulus package.

Heidi Shierholz, former chief economist at the US Department of Labor, explains the problem facing president-elect Biden and his team:

Updated

NIESR: UK GDP to shrink in Q4

NIESR, the economic thinktank, has crunched today’s GDP report...and concluded that the UK economy will shrink around 2.2% in the last quarter of the year.

They estimate that growth will drop to a meagre 0.3 per cent in October, and then plunge by 12% in November, before rebounding in December if the current lockdown ends.

Our forecasts assume a return to October levels of activity in December: in other words, we expect a rapid rebound following the end of the second lockdown. Accordingly, our forecast for 2020 stand at –11.3 percent.

Dr Kemar Whyte, senior economist for Macroeconomic Modelling and Forecasting, adds:

“Today’s ONS data suggest that the recovery from the first phase of the pandemic was already slowing by the end of the third quarter, with output remaining 8.2 per cent below pre-pandemic levels in September. Growth in the fourth quarter will be much slower than in the third quarter and is likely to turn negative, due to weaker growth in October and a second lockdown from November.

Our expectations for the fourth quarter and beyond will depend on the stringency and duration of ongoing lockdowns; local and national .”

European markets drop back

Back in the markets, European stocks are dipping deeper into the red, as this week’s vaccine enthusiasm fades a little.

The FTSE 100 index of blue-chip shares in London is down almost 1%, with engineering firm Rolls-Royce (-7.7%) and airline group IAG (-4%) in the top fallers.

The German DAX and French CAC have dropped around 1.4%.

After several days of frenzied activity, which drove up some battered stocks dramatically, traders may be taking a more cautious view of vaccine prospects, as Pfizer’s candidate hasn’t been approved yet, and will require massive effort to roll out.

And in the meantime, widespread lockdowns mean the UK and eurozone economies could shrink this winter.

Pierre Veyret, technical analyst at ActivTrades, says:

The worsening virus situation in many hotspots is weighing on market sentiment as it sparks fears of tougher containment measures that could bring further economic damage.

While a bearish correction after the rally over the past few days would be logical and even healthy, fears of a W-shaped recovery are occupying more and more space in investors‘ minds.

Chris Beauchamp, chief market analyst at IG, says today’s GDP report didn’t bring too much cheer, given the September slowdown.

“Equities have moved lower this morning, as the vaccine bounce begins to fade across markets. After days of gains the rally in equities is beginning to slow down, as indices throughout Europe move into the red.

As enthusiasm about a vaccine begins to fade the FTSE 100 has lost ground, with a slowdown in the excited buying of hard-hit value names in sectors like travel, airlines, banks and others.

In Europe it is a similar story, but overall, it feels like a pause rather than the beginning of a reversal.

“UK GDP data showed a strong rebound for Q3, although slightly below estimates, and any positive feelings created by the report were muted thanks to the evident slowdown in September from the euphoric performance in July and August.

Updated

Luke Bartholomew, senior economist at Aberdeen Standard Investments, predict that the UK economy will remain weak until the spring:

“While it is welcome news that the economy recovered so quickly over the summer, it is also, in economic terms, very old news. The economy is once again contracting as renewed lockdowns send us into a double dip.

We are unlikely to see a sustainable recovery until spring next year, by which time vaccine roll out should allow for systematic scaling back of lockdown. But what today’s data reminds us is that when that recovery does come, its first few months will probably be very rapid.”

More experts are predicting that the UK faces a rough winter, with the latest lockdown restrictions following fading growth in September.

Craig Erlam, senior market analyst at OANDA Europe, warns that the economy is struggling again:

UK GDP fell a little short of expectations this morning, rebounding 15.5% following the 19.8% contraction in Q2, leaving the economy 8.6% smaller than it was in January. On the face of it, this may still look encouraging, 8.6% is a lot but that’s a really impressive bounceback.

But then, the signs are already there that the economy started to struggle again in October and November and now we’re back in national lockdown. It’s going to continue to be a stuttered recovery until a vaccine is widely available and the next couple of months is going to be extremely challenging in managing the virus. And at a critical time of year for so many businesses.

Markus Kuger, chief economist at data & analytics firm Dun & Bradstreet, warns that a growing number of hospitality businesses are already missing bills or falling into liquidation.

“While the latest ONS GDP figures offer a glimmer of hope, businesses need to remain realistic about the outlook. The first lockdown in the UK resulted in significant economic impact and, with a second national lockdown in place, Dun & Bradstreet’s country risk outlook for the UK has shifted to ‘deteriorating’ – while the overall rating remains on an all-time low.

“National and local lockdowns put immense strain on every sector, but one that faces tremendous difficulty, and is a particular cause for concern, is the eating and drinking sector where there’s been a significant 54% quarter-on-quarter increase in corporate liquidations in Q3 2020. And although there’s optimism around a possible mass rollout of a COVID-19 vaccine that will lead to an economic recovery – with stocks lifting in London again - late payments and liquidations remain on the rise.

“Analysis of available trade payment data shows a marked decrease in prompt payment performance since the first lockdown in March 2020 with the percentage of businesses paying bills on time down from 47.2% in March to 40.8% in August 2020. This increased slightly in September 2020, but Dun & Bradstreet predicts that the impact of a second national lockdown will reverse this trend again and lead to an increase in late payments.

Here’s a video clip of Rishi Sunak commenting on today’s GDP figures.

Updated

Discount retailer B&M is paying its shareholders a £250m special dividend, after a boost in sales during lockdown almost doubled profits in the first half of the year.

The group, which sells everything from homeware and toys to electrical items and pet supplies, was among the essential retailers allowed to remain open during the UK-wide lockdown in the spring, when it proved popular with shoppers.

Its UK revenues rose by almost 30% in the six months to 26 September and pre-tax profits soared by 95%, to £296m, higher than it had forecast in September.

The International Energy Agency (IEA) has cautioned against hopes that Covid-19 vaccines will give economic demand an immediate boost.

In its latest report, released this morning, the IEA warns that vaccines are unlikely to significantly increase demand for oil until well into next year.

The oil price has jumped over 10% this week, lifted by Pfizer’s trial news.

But the Paris-based group says:

It is far too early to know how and when vaccines will allow normal life to resume. For now, our forecasts do not anticipate a significant impact in the first half of 2021.

So, given rising coronavirus cases in the US and Europe, the IEA has cut its near-term outlook for global demand. It now expects demand to decrease by 8.8 million barrels per day this year, down from 8.4m bpd last month.

Not a good sign for global growth in the current quarter....

Stock markets are a little lower today too, after some remarkable gains earlier this week.

After rising for eight days in a row, the UK’s FTSE 100 is currently down 23 points or 0.37% at 6358 points (down from last night’s five-month high). Airline group IAG, banks and oil companies BP and Royal Dutch Shell are among the fallers.

European markets are also lower, with the German DAX down 0.4% and the French CAC losing 0.6% (after big gains earlier in the week.

As you can see, the FTSE 100 has rocketed since the start of last week, especially after Pfizer’s vaccine news, so this is only a small breather.

David Madden, analyst at CMC Markets, says the initial euphoria that Pfizer/BioNTech’s Covid-19 vaccine was 90% effective in trials was now fading.

Stocks in Europe have handed back some of the monster gains that were made in the previous three sessions. During the week, the optimism surrounding the possible Covid-19 vaccine story ramped up equity markets, and now things have calmed down.

Dealers are starting to realise that even though a drug has a very high success rate in late stage trials, the process of obtaining approval and getting it rolled out, could take a long time.

Meanwhile, concerns about the health crisis itself have crept back onto the radar. Worries are about rising case numbers have provided dealers with an excuse to trim their exposure to stocks.

In the financial markets, the pound has lost some ground this morning.

Sterling has dropped by 0.5% against the euro, to €1.116, having hit a six-month high yesterday. It’s also down 0.25% against the US dollar, at $1.319.

Sam Cooper, vice President of Market Risk Solutions at Silicon Valley Bank, says today’s growth report has dampened support for the pound, especially with Brexit talks approaching a deadline.

“Despite the headline indicating record growth in the third quarter, the reading is actually a mild disappointment, with the number missing market consensus.

The weaker than expected print will put the brakes on the recent sterling rally and will provide a reality check for the market and will highlight lingering headwinds for the pound in the form of ongoing Brexit negotiations and the growing economic impact of the pandemic”

Updated

You can read the full details of the UK’s record growth in Q3 here:

And the worrying slowdown in September is covered here:

My colleague Phillip Inman writes that the economy would have performed better in September if ministers had acted differently:

If only the government had signalled in July it would keep the furlough scheme in place until next March, as it was subsequently forced to do.

If only the gaps in the first wave of the chancellor’s rescue schemes, which left millions of people without a coronavirus safety net, had been filled.

And how much more rocket fuel would the recovery have benefited from had No 10 and the Treasury stopped bickering about the trade-offs between the health of the nation and economic growth.

GDP climbed 15.5% during the summer months as lockdown eased
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Guardian graphic | Source: ONS

Sunak: We want to get the economy going strongly again

Chancellor Rishi Sunak has been interviewed about today’s GDP figures on Sky News, and suggested that he would consider a “range” of measures to support the economy next year.

Q: What will the economic impact of the second lockdown be?

Restrictions of this nature do have a significant impact on the economy, Sunak replies, as we’ve already seen in the spring.

They have a ‘particularly acute impact’ on sectors, such as hospitality, due to the impact of people to socialise. But it’s very hard to precisely model the impact of “time-limited interventions”, or the 10pm curfew, he suggests.

We know that the economic damage is significant, we know that three quarters of a million people have already lost their jobs since the start of this crisis.

That’s why we’ve put in place a series of measures to try and mitigate as much of that damage as possible - extending the furlough scheme, creating job placements for young people through the Kick Start scheme, providing support to those who are most vulnerable, and it’s important we keep doing that.

Q: Back in May, you said the furlough scheme wouldn’t be restarted if there was a second wave, so what changed?

Sunak says the “necessary restrictions” that have been put in place on a national basis are significant - a shutdown of large swathes of the economy. So it’s right to extend the furlough scheme until the end of next March to support jobs and incomes “through a difficult winter”.

Q: But many people predicted a second wave. How do you explain what some are calling a u-turn?

Suppressing the virus has to be the primary focus, Sunak replies. The government’s strategy of localised interventions was the right approach, he insists.

I firmly believe that’s the right thing to do, to use localised intervention. And that was an approach was supported by our scientific and medical advisors and we were all watching the spread of the disease.

Unfortunately, he adds, there was a very rapid rise of cases in areas with low incidence, the possibility of hospitals being overwhelmed within weeks, so the government had to act in a different way. That’s unfortunate, but necessary.

[on that point, we know that Sage warned in September that the UK faced a “very large epidemic with catastrophic consequences” unless a two-week “circuit breaker” lockdown was imposed]

Q: Are you frustrated that the government’s plans, the interventions and the test and trade, didn’t do the job?

Sunak replies that the government is dealing with something the like of which hasn’t been seen before, and it’s throwing absolutely everything at it.

Test and trace has gone up from 10,000 tests per day to half a million per day - one of the leading countries in the world, and an “extraordinary achievement, Sunak insists.

Q: Would you consider reintroducing Eat out to Help out after this lockdown ends?

Sunak won’t speak about specific measures, but he does indicate he’d consider a range of possible interventions to boost the economy in 2021.

Broadly, he says, it’s right that when the UK finally exits the crisis “hopefully next year with testing and maybe indeed vaccines as well”, we can look to get back to normal.

We’ll have to look at the economic situation then and see what’s the best form of our support.

We want to make sure that we get the economy going strongly coming out of this. We want to make sure we support employment, support people going in to jobs.

We want to help the people who sadly lost their jobs to find new ones. We want to get consumers spending again, people out and about. So we’ll look at a range of things to see what the right interventions are at that time.

Updated

Worryingly, this morning’s GDP report shows that UK business investment remains very weak, despite the return to growth (for the moment...)

Business investment is still 20.5% below its level at the end of 2019, lagging behind household consumption (which is now 12.4% below its Q4 2019 level).

It’s not surprising that company bosses have been reluctant to commit to new projects; economic uncertainty is rife, with the Covid-19 pandemic hanging over them.

But it highlights the long-term damage being caused by Covid-19. Weaker investment in 2020 means lower productivity and growth potential in future years, which will make it harder to bring unemployment down.

Howard Archer of EY Item Club explains:

There is the risk – especially given heightened uncertainties stemming from the renewed rise in COVID-19 cases – that companies remain cautious for an extended period in new investments with negative implications for productivity.

Uncertainties over the UK-EU’s future trading relationship are also currently likely to be weighing on investment.

But a vaccine rollout could give a “significant boost” to business confidence and investment plans, he adds.

Jonathan Athow, deputy national statistician for economic statistics at the ONS, points out that trade in the hospitality sector slowed in September, due to the Eat Out to Help Out scheme ending. Schools and universities, though, added to GDP.

Athow says:

“The return of children to school boosted activity in the education sector. Housebuilding also continued to recover, while business strengthened for lawyers and accountants after a poor August.

“However, pubs and restaurants saw less business after the Eat Out to Help Out scheme ended and accommodation saw less business after a successful summer.”

This chart, from the ONS website, shows how accommodation and foods services output recovered in August (when the government was subsidising meals in restaurants and pubs), but then fell back:

Full story: UK economy grew at record quarterly rate but recovery slowed in September

Our economics editor Larry Elliott writes that the recovery has petered out in September:

Britain’s economy grew at a record quarterly rate of more than 15% as lockdown restrictions were eased in the summer but the recovery has now petered out, the latest official figures have revealed.

Data from the Office for National Statistics showed that national output expanded by just 1.1% in September – the last month before curbs on activity to cope with Covid-19 were re-introduced.

The ONS said that while the economy had now expanded for five months in a row, the pace of recovery had decelerated. Record growth in the July to September period followed an unprecedented drop of 19.8% in the second quarter and a fall of 2.5% in the first three months of the year.

Gross domestic product – the measure used to gauge the size of the economy – increased by 9.1% in June, 6.3% in July, and 2.2% in August before slowing again in September.

The ONS said there was a boost from children going back to school, which had helped support activity, but there was a slowdown in business for pubs and restaurants due to the end of the Eat-out-to-help-out scheme...

Here’s the full story:

Economist James Smith of Resolution Foundation has written a handy thread on today’s UK GDP figures - outlining how the economic situation is still bad, and likely to get worse this quarter:

Experts: Economy likely to shrink again

Several experts are warning that the UK economy will shrink again in the current quarter, given the slowdown in September and the tighter Covid-19 restrictions imposed since then.

Alistair McQueen, Head of Savings and Retirement at Aviva, says ‘recessionary fears’ are swirling, following the news that GDP only expanded by 1.1% in September.

“This latest data reveals that the UK’s economic recovery is slowing.

“The recovery in Q3 output levels was expected after the depths of the spring lockdown and the boost to consumer spending triggered by the Eat Out to Help Out scheme. However, September’s data points to a slowdown in the country’s economic revival.

“Severe headwinds are forming which are likely to continue to curb the recovery in the future. The reintroduction of a nationwide lockdown in England will restrict economic activity and hit future output levels. This is likely to be further compounded by a reduction in consumer confidence due to a resurgence in virus cases.

“Acute economic uncertainty is causing recessionary fears to surface again. Today’s positive figure for Q3 is unlikely to carry over to Q4, suggesting that the recession of 2020 looks set to resume next year.

Thomas Pugh of Capital Economics estimates that the economy could shrink by 3.5% in October-December, with November suffering a sharp lockdown contraction.

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.

We have pencilled in a hit of 8.0% m/m in November. That would result in a 3.5% contraction in Q4. But the recent news of a potentially effective vaccine means that the outlook beyond the next six months could be much rosier than we have previously anticipated.

Economist James Smith of ING bank is also predicting a Q4 contraction:

There were already signs of trouble emerging in the monthly data for September, before many of the recent restrictions came into force.

The overall growth figure for September (1.1%) was weaker than anticipated, reflecting a lower boost from education than we’d expected (when schools and universities returned properly for the first time since before lockdown).”

“All of this left the size of the UK economy some 8% below pre-virus levels in September, based on the monthly GDP data. Unsurprisingly, that’s probably as good as it is going to get for the time being. We are likely to see a modest fall in GDP during October, reflecting the introduction of ‘tiered restrictions’ in England (which will have acted as a further drag on hospitality) and a local lockdown in Wales. However, the decline will be amplified in November, where we estimate we’re likely to see a 6-7% slide in monthly GDP on the month-long English lockdown. This will also result in a negative figure for Q4 as a whole.”

Jon Hudson, fund manager at Premier Miton, hopes that a successful vaccine rollout can help the economy turn the corner next year:

“Growth in the quarter started brightly, boosted by the easing of lockdown restrictions and the Eat Out to Help Out scheme in August, but it waned in September.

With lockdown restrictions back in place, Q4 is likely to weaken further, however, thanks to the recent positive Pfizer vaccine news, we can potentially start looking forward to GDP growth in 2021 with more confidence.”

Labour: Government must get a grip

Labour’s shadow chancellor, Anneliese Dodds, says it’s a relief to see the UK economy returning to growth in the last quarter (growing by 15.5%).

Speaking on Sky News, Dodds points out that the economy is still much smaller than before the crisis - 9.7% smaller compared to Q4 2019. And she fears the recovery could stumble during the current quarter:

There are concerns that we could be seeing a shift backwards because of the lockdown that it currently underway.

This really shows that the government has got to get a grip of those issues that are driving economic decline, particularly the public health crisis and get test, trace and isolate sorted out.

But make sure we have a longer-term horizon for economic support as well. That would really help to bring more confidence.

Sunak: Still hard times ahead

Chancellor of the Exchequer, Rishi Sunak, has warned that there are still ‘hard times’ ahead, with growth likely to have kept slowing since September.

Responding to the GDP figures, he says:

“Today’s figures show that our economy was recovering over the Summer, but started to slow going into Autumn. The steps we’ve had to take since to halt the spread of the virus mean growth has likely slowed further since then.

“But there are reasons to be cautiously optimistic on the health side – including promising news on tests and vaccines. My economic priority continues to be jobs – that’s why we extended furlough through to March and I welcome the news today that nearly 20,000 new roles for young people have been created through our Kickstart scheme.

“There are still hard times ahead, but we will continue to support people through this and ensure nobody is left without hope or opportunity.”

ONS: UK suffers steeper slump than US, Germany or France

The Office for National Statistics also points out that the UK has suffered a much steeper Covid-19 slump this year than the US, and other major European economies.

It says:

The UK economy is still 9.7% lower in Quarter 3 2020 compared with the end of 2019.

This is more than twice as large as the cumulative drop in GDP observed in Italy, Germany and France and nearly three times the size of the cumulative drop of 3.5% in the US.

All three main sectors of the UK economy expanded in the July-September quarter, today’s report shows.

Services output grew by 14.2% in Quarter 3 2020, while production output increased by 14.3%, and construction output expanded by a pacey 41.7%.

Now, there’s partly a base effect in play here (the more a sector shrinks, the larger the recovery). And all three sectors’ output is still lower than before the pandemic::

In September alone, the services sector grew by 1.0%, production by 0.5% and construction by 2.9%.

The ONS adds:

It is important to note that since the peak monthly growth in June, growth in GDP and its main sectors has slowed.

UK manufacturing only grew by 0.2% during September. The ONS reports that the manufacture of pharmaceuticals acted as a drag on growth in September, falling by 9.8%.

Here’s another chart, showing how the UK’s record-breaking growth in July-September still leaves the economy much smaller than in January.

This chart of monthly GDP shows the slowdown of growth in August and September as momentum eased through the quarter.

The ONS says that September 2020 GDP is now 22.9% higher than its April 2020 low.

However, it remains 8.2% below the levels seen in February 2020, before the full impact of the coronavirus (COVID-19) pandemic.

Updated

Growth slows in September

The UK economy did slow in September, though, and by more than forecast.

The ONS reports that UK GDP grew by 1.1% in September 2020, below the 1.5% which City economists had expected.

That’s down from 2.2% growth recorded in August (revised up from 2.1% originally), and the 6.3% growth recorded in July (revised down from 6.4%).

But it also means the economy has grown for five months running, after a record fall of 19.5% in April 2020.

The ONS explains:

September 2020 GDP is now 22.9% higher than its April 2020 low. However, it remains 8.2% below the levels seen in February 2020, before the full impact of the coronavirus (COVID-19) pandemic.

Updated

UK economy grows by record 15.5% in Q3

Newsflash: UK GDP grew by 15.5% in the third quarter of this year, a record pace, as the economy recovered from the economic shock of its first lockdown.

But that still leaves the economy around 9.7% smaller than at the start of the year, before the pandemic.

The Office for National Statistics reports that:

  • UK gross domestic product (GDP) is estimated to have grown by a record 15.5% in Quarter 3 (July to Sept) 2020, as lockdown measures were eased.
  • Though this reflects some recovery of activity following the record contraction in Quarter 2 (Apr to June) 2020, the level of GDP in the UK is still 9.7% below where it was at the end of 2019.
  • Compared with the same quarter a year ago, the UK economy fell by 9.6%.
  • While output in the services, production and construction sectors increased by record amounts in Quarter 3 2020, the level of output remains below Quarter 4 (Oct to Dec) levels, before the impact of the coronavirus (COVID-19) pandemic was seen.
  • The levels of expenditure remain considerably below their levels before the effects of the coronavirus, as the pickup in business investment has been much weaker than private consumption

More to follow...

Michael Hewson of CMC Markets says today’s GDP figures will show how much momentum the UK economy carried into its current lockdown:

With the increase in restrictions seen through October, and the partial lockdown of the economy into November, the damage seen in Q4 is likely to eat into the recovery seen in Q3, which means the numbers today are likely to be seen through the prism of being in the rear-view mirror, and somewhat old news.

That doesn’t mean the numbers should be considered meaningless. A good number will still be welcome, with the hope that the rebound is strong enough as to mitigate some of the economic losses we are set to see in the next couple of months, as new lockdown measures bite into Q4 economic activity.

Analysts at RBC Capital Markets predict that the UK’s economic momentum ‘waned’ towards the end of the quarter:

Given the weaker than anticipated monthly GDP growth for August of 2.1% m/m, our economists now expect GDP to have expanded by 15% q/q, down from 19% q/q previously.

In addition, more than half of the growth in GDP in August came from the accommodation and food sectors, which benefited from a combination of staycations and the government’s Eat Out to Help Out scheme. That contribution is unlikely to have been repeated in September though the monthly figure should benefit from the reopening of schools, and we look for a monthly expansion of 0.8% m/m, which would leave GDP 8.6% below its pre-pandemic level at the end of the quarter.

Introduction: UK GDP report due this morning

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

All eyes are on the Office for National Statistics this morning, as it reveals how rapidly the UK recovered over the summer, and how the economy fared in September as the second wave of Covid-19 cases began.

Economists predict that the UK economy grew by around 15.8% in the July-September quarter, as the country recovered from the first national lockdown.

Normally such sparkling growth would be cause for celebration. But the reality is that the economy is still much smaller than before the pandemic -- having plunged by a record-breaking 19.8% between April and June.

Today’s GDP data for September may be most significant. The City predicts that growth slowed to around 1.5% during September, a slowdown on August’s 2.1% (which was itself weaker than forecast).

GDP data inevitably come with a lag, and today’s report won’t show the impact of the new three-tier Covid-19 system, or the second English lockdown which began this month.

But, it will cover a time of rising Covid-19 cases, and tightening restrictions in large parts of the country. During September, new measures to control the spread of coronavirus were imposed in parts of the north-west of England and Yorkshire, Birmingham, the North East, Scotland and Wales.

By late September, more than 21m people in the UK faced some form of tighter restrictions, including curbs on households mixing, and the 10pm curfew on pubs and bars that was imposed in the North East, and then in England, Scotland and Wales.

We’ll get the verdict at 7am GMT.

The agenda

  • 7am GMT: UK GDP report for Q3 2020 and September
  • 7am GMT: UK balance of trade for September
  • 7am GMT: UK industrial production for September
  • 8am GMT: Bank of England governor Andrew Bailey speaks at the Financial Times Global Conference
  • 9am GMT: IEA Oil Market Report for November
  • 2pm GMT: The NIESR thinktank’s monthly GDP Tracker for October

Updated

 

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