The UK economy almost ground to a halt in October as the second wave of coronavirus hit the hospitality sector
- The UK economy expanded for a sixth month in October, but at a rate of just 0.4%, against a backdrop of rising coronavirus cases, according to figures outlined by the Office of National Statistics on Thursday.
- The second wave nearly brought UK economic growth to a halt as accommodation and food services were impacted by restrictive measures in October.
- Meanwhile, manufacturing output grew 1.7% on a monthly basis and is expected to rise further in the near-term.
- With Christmas celebrations likely to accelerate the spread of the virus, a return of service closures will apply to all parts of the country in January, a chief economist said.
The UK economy's growth stalled in October as a rising number of coronavirus cases nearly stopped economic recovery, data released Thursday by the country's statistics authority showed.
Gross domestic product slowed from 1.1% in September to only 0.4% in October, its sixth consecutive monthly increase. The figure was above Pantheon Macroeconomics' estimate of 0.0% and October's GDP is still 23.4% higher than where it was in April.
Both the manufacturing and healthcare sector contributed the most to monthly economic output, while accommodation and food services were a drag on total output as tightening measures held back demand.
The pound fell broadly against most major currencies on Thursday morning, losing around 0.7% against the dollar and 0.9% against the euro.
Manufacturing output, which grew 1.7% in October, is expected to rise further in the near-term given that EU firms will stockpile UK goods due to the risk of a no-deal Brexit, said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
GDP is expected to have dropped by about 4.5% on a monthly basis in November, leaving it 13% below its pre-pandemic level, when most of the country was under full lockdown again, and is likely to continue to decline in December, as a result.
"Despite the second lockdown in England being lifted, much of the UK remains in limbo with many businesses in the hospitality and arts sector unable to take part in what should be their busiest season," said Richard Pearson, director at investment platform EQi. "Coupled with the ongoing uncertainty around a post-Brexit trade agreement, it's likely the UK economy won't recover to its pre-pandemic state for years."
Although service-sector activity will likely see an increase in December, as consumers stock up on gifts and food and drink for the holiday season at the end of the month, the temporary loosening of movement restrictions over a five-day period at Christmas does not bode well for the start of the first quarter of 2021, even as a mass-vaccination program continues to roll out, Pantheon Macroeconomics' Tombs said.
"With Christmas celebrations set to boost transmission of the virus further, we think it is inevitable that tier three restrictions, requiring the closure of the hospitality sector and indoor leisure facilities again, will apply to virtually all of the UK in January," he said.
He predicted job losses and business collapses will climb until the second quarter next year, after which a widespread vaccination should enable a sustainable and sharp upturn in economic activity.
UK GDP saw a dramatic 19.5% drop in GDP back in April, its largest monthly loss on record, when virtually all areas of the economy were hit by COVID-19 restrictions.