The UK economy barely grew in October as the post-pandemic recovery stalled, according to figures released on Friday by the Office for National Statistics.
GDP grew just 0.1%, coming in weaker than expectations for 0.4% growth and leaving the economy 0.5% below pre-pandemic February 2020 levels.
The small growth in GDP was driven mostly by a rise in face-to-face GP appointments and solid demand for second-hand cars. The services sector expanded by 0.4%, taking it back to pre-pandemic levels for the first time. However, the manufacturing sector was flat and construction fell 1.8% amid a shortage of materials.
Paul Dales, chief UK economist at Capital Economics, said the disappointing rise in GDP in October suggests the economy had slowed to a crawl even before the Omicron Covid-19 variant was discovered in late November.
“Early evidence suggests growth in November might have been a bit better. Nonetheless, at such low rates of growth, the government’s ‘Plan B’ Covid-19 restrictions could be the difference between the economy growing or contracting in December,” he said.
Dales estimated that ‘Plan B’ restrictions could reduce GDP by 0.0-0.5% in December. “That means it is touch-and-go whether the economy will grow or contract this month. Against that background, we doubt the Bank of England will raise interest rates next Thursday,” he said.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: “Although a rate rise can’t be completely ruled out next week, most bets are off that the Bank will push them up so soon, given this latest downbeat reading and the fact that the Omicron variant is still an unknown quantity in terms of the extra pressure it will put on the health service.
“A rate rise in February is more likely to be on the table, as the inflation kettle is set to be whistling loudly by then. That is unless restrictions are ramped up dramatically, pushing the economy into an even tighter recovery position.”