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UK economy rebounds but new lockdowns threaten recovery

The U.K. economy is on course to shrink again in the final quarter of the year as lockdowns take a toll.

Cranes dominate a cloudy sky in south London. Britain's economy rebounded by a record 15.5 per cent in the third quarter. Picture: AFP
Cranes dominate a cloudy sky in south London. Britain's economy rebounded by a record 15.5 per cent in the third quarter. Picture: AFP

The U.K. economy recovered some of the ground lost to lockdown in the third quarter but its recovery was much weaker than in the U.S. and even other European economies, highlighting the outsize toll the pandemic has taken on Britain.

Most of the country has since re-entered lockdown to quell the resurgence of the coronavirus, putting the economy on course to shrink again in the final quarter of the year.

“Growth in the fourth quarter will be much slower than in the third quarter and is likely to turn negative, thanks to stagnation in October and a second lockdown in England from November,” said Kemar Whyte, an economist at the National Institute for Economic and Social Research.

Its prospects for 2021 are clouded both by the pandemic and Brexit. Failure to agree and put in place a free-trade deal with the European Union by the end of the year would mean significant new barriers to trade with the bloc from Jan. 1.

Britain’s Prime Minister Boris Johnson, left, Chancellor of the Exchequer Rishi Sunak load a delivery van during a visit to a supermarket distribution centre in London. Picture: AFP
Britain’s Prime Minister Boris Johnson, left, Chancellor of the Exchequer Rishi Sunak load a delivery van during a visit to a supermarket distribution centre in London. Picture: AFP

The U.K. economy grew 15.5% in the third quarter, the Office for National Statistics said Thursday, as business activity recovered from the nationwide lockdowns imposed in the spring to halt the spread of the virus, which has killed at least 50,000 people in the U.K., depending on how deaths are measured.

The economy’s expansion during the three months through September was weaker than France, Spain or Italy. Germany and the U.S. grew at a slower pace in the third quarter, but didn’t shrink as much the U.K. and those other European economies earlier in the first half of the year.

The third-quarter rebound left the U.K. trailing behind many other rich countries in its recovery. The Office for National Statistics said U.K. economic output in the three-month period was 9.7% lower than in the final three months of 2019, before the pandemic began to weaken global activity. That decline was twice the fall recorded in France, Germany and Italy, and almost three times that seen in the U.S.

The rebound in the U.K. was driven by consumer spending, which rose 18% in the third quarter after falling by a quarter in the second. Business investment grew at less than half that pace, underscoring how uncertainty about the economy’s prospects is holding back corporate investment.

ONS figures indicated that the recovery was slowing as the quarter ended, with output in September up 1.1% month-on-month, compared with more than 6% in July.

The International Monetary Fund and the Organization for Economic Cooperation and Development expect the U.K. to post the biggest contraction in 2020 as a whole among the Group of Seven advanced economies.

The Wall Street Journal

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Original URL: https://www.theaustralian.com.au/business/the-wall-street-journal/uk-economy-rebounds-but-new-lockdowns-threaten-recovery/news-story/f2ea2471219de08dee38727aa78b0850