Growth slowed more than expected in 2021Q3, with the GDP increase revised down to 1.1% (QOQ) from 1.3%. Moreover, the Markit surveys suggested activity slowed in December.
Nevertheless, assuming there are no major extensions to Covid-related restrictions, growth should continue into 2022 and GDP could show annual growth of 4% after 7% in 2021.
Prospects are, however, clouded by higher inflation, partly driven by higher energy bills, which will squeeze household incomes. Households are also facing higher taxes and higher interest rates (to over 1% by end-2022, priced in by the markets).
Markit surveys for December suggested growth had stalled in Germany but was still firm in France. US growth also looked firm, though inflationary pressures continued to mount.
Lord Frost resigned as Minister of State in the Cabinet Office and Chief Negotiator of Task Force Europe on 19 December. Foreign Secretary Liz Truss assumed his Brexit responsibilities.
Ruth Lea said “Even though growth should continue into 2022, prospects are clouded by uncertainties. The two main ones are, arguably, the possibility of tighter Covid-related restrictions and, secondly, inflation and the future trajectory of oil and gas prices, major rises of which have been driving inflation higher. On the possibility of tighter restrictions, the Prime Minister has resisted imposing further restrictions so far and, moreover, appears reluctant to do so. Concerning inflation, the annual rate should fall back in 2022H2, not least of all reflecting base effects, assuming there are no further major hikes in energy prices. Indeed, prices may reverse if production is stepped up. But this assumption is a very big, and very uncertain, assumption”.