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United Kingdom GDP October 2020

United Kingdom: Economy records weakest performance since April in October

GDP grew 0.4% in month-on-month seasonally-adjusted terms in October, which followed September’s 1.1% increase. The outturn marked the worst reading since April, and was driven by a sharp slowdown in the service sector amid tighter restrictions. The construction sector also lost steam, while industrial output accelerated on faster manufacturing growth.

On a rolling quarterly basis, GDP rose at a softer pace of 10.2% in August-October (July-September: +15.5% qoq).

The economy is seen contracting over Q4 as a whole due to tough restrictions nationwide imposed until early December. Moreover, while restrictions have generally been loosened in recent days, they remain substantial in many parts of the country amid the government’s tiered system, which will continue weighing on the service sector. While the manufacturing sector will likely receive a boost from Brexit stockpiling by firms, this effect will be short-lived and likely unravel in Q1 2021.

Regarding the outlook, James Smith, economist at ING, comments:

“We expect the economy to end the year some 9-10% below pre-virus levels, and anticipate 4Q GDP in the region of -2%. Unfortunately, the prospects for the first quarter also look fairly bleak. While a positive GDP figure remains the most likely outcome, the rising risk of another form of lockdown in the new year, combined with the initial disruption as UK-EU trade terms change (even with a deal), suggest the UK economy is far from out of the woods just yet – even as vaccine optimism raises hopes for a better performance through the latter parts of 2021.”

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