Post-Pandemic Peril: UK economic growth falls short of forecast in February

April 19, 2022

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2 min read

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What's going on here?

Growth of Britain’s gross domestic product (GDP) has experienced a sharper slowdown in February than previously expected amidst concerns over an upcoming surge in inflation.

What does this mean?

The Office for National Statistics (ONS) has reported that GDP rose by just 0.1% in February, below the 0.3% forecast by Reuters poll economists (to see that report, click here). This is down from a 0.8% growth in January following the December 2021 surge of the Covid-19 Omicron variant.

The economic slowdown was spurred on by decreases in production and construction, which each fell by 0.6% and 0.1% respectively. This came in spite of considerable jumps in both international and domestic tourism. In particular, car production has rapidly decreased in the preceding months, due in part to the ongoing global semiconductor chip shortage and the Swindon Honda manufacturing plant closure. Economic growth was also held back by reductions in the NHS Test and Trace programme, as well as the national vaccination programme, both of which had significantly contributed to the British GDP during the new year period.

This economic slowdown follows last month’s announcement by the Office for Budget Responsibility (OBR), amending its 2022 fiscal growth forecast from 6% to 3.8%, along with a prediction that inflation would reach 8.7% later this year, a 40-year-high (to see that report, click here). This is partially due to the war in Ukraine, as well as pandemic-related supply chain difficulties and storms Dudley, Eunice and Franklin, which hit the UK in mid-February.

What's the big picture effect?

Looking at the larger picture, both the slowdown of domestic economic growth and the rising inflation will lead to a marked reduction in household disposable income. OBR reports predict that the average household will experience a ÂŁ2,533 drop in income this year, the largest since record-keeping began in 1956-1957. According to the Centre for Economic and Business Research (CEBR), half of this drop is attributable to the Russian invasion of Ukraine.

In addition to dwindling disposable income, a hefty increase in prices is expected at supermarkets and gas stations. The CEBR inflation predictions indicate that a shopping basket costing ÂŁ20 a year ago will soon cost ÂŁ22 within the next few months. Analysts are predicting shrinkage of the economy up until June – reflecting the reduced household disposable income, reductions in pandemic-related public healthcare expenditure, and the additional public holiday for the Queen’s Golden Jubilee. The February growth downturn has led to concerns of economic stagnation, potentially even warning of an upcoming recession.

The UK’s service sector also led to growth in February, while industrial output hampered economic growth – indicative of Britain’s continuous progressive shift away from production and industrial sectors towards tertiary sector economic production. In particular, growth momentum shifted towards sectors hit hardest by the Covid-19 pandemic, such as food services, accommodation, entertainment and recreation. This shift will result in a greater reliance on the service sectors for economic growth.

All in all, this is best summed up by Danni Hewson, financial analyst at AJ Bell. “It (February) was the month the UK was supposed to start ‘living with Covid’, but if February is any indication of what that life will look like, the UK economy is in trouble“.

Report written by Calvin Tan

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