Economic growth struggles as labour and supply shortages drag

GDP grew 1.3% between July and September 2021, according to official figures out today.
This compares with 5.5% growth in Q2 and GDP is now 2.1% below that seen pre-pandemic (Q4 Oct-Dec 2019).

Danni Hewson, AJ Bell financial analyst, comments: “The hope had been that once all covid restrictions were firmly in the rear-view mirror the economic engine would be revved and ready but while the economy did grow between July and September that growth slowed considerably.  Momentum was undoubtedly lost from the double drag on staff and supply shortages, remember the ‘pingdemic’ and the havoc that created.  One of those drags has been largely dealt with, though there are still sectors struggling to find the staff they need, however its important to note that supply chain constraints have already led to many sectors running down their inventories and stock levels are a far cry for where they would normally be in the run up to Christmas.

“Certainly, September’s story was a more optimistic one that that told by July and August. More people were flying, going to the theatre, seeing their doctor in person – all actions that boosted output from the service sector, as did a last-minute rush to complete all those home sales before the final end of the stamp duty holiday.  Construction also enjoyed a welcome bounce back with an increase in maintenance work on schools and offices.

“But what next? Household spend has played a huge part in propelling the UK economy forward over the last six months, but those households are now feeling the squeeze of rising prices.  Government support measures have tapered off and trade is, in a word, disappointing.

“The economy might be slowly creeping back to pre-pandemic levels, but the pace isn’t expected to pick back up when you factor in the tailwinds already evident in the last lot of figures.  The UK is in danger of being left behind by many of its European counterparts and without decent growth and sustained productivity, the dream of a high wage economy is one that starts to look a little shaky.”