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United Kingdom GDP Q4 2021

United Kingdom: GDP growth remains stable in the final quarter of 2021

Economic growth remained steady, with a 1.0% increase on a seasonally-adjusted quarter-on-quarter basis in the fourth quarter, matching the reading from the third quarter. Q4’s reading marked the third consecutive quarter of growth, and came in marginally below market analysts’ expectations. On an annual basis, economic growth moderated to 6.5% in Q4, following the previous quarter’s 7.0% expansion. As such, growth came in at 7.5% for 2021 as a whole, rebounding strongly from 2020’s steep 9.4% contraction.

Looking at the details of the quarter-on-quarter result, private consumption growth fell to 1.1% in Q4, marking the weakest expansion since Q1 2021 (Q3: +2.9% s.a. qoq). Meanwhile, public spending increased 1.9% in Q4—improving from Q3’s flat reading—while fixed investment bounced back, growing 2.2% in Q4 and contrasting the 0.2% decrease in the previous quarter.

Externally, exports of goods and services rebounded, growing 4.9% in Q4 and contrasting the 4.7% contraction recorded in Q3. Conversely, imports of goods and services deteriorated, contracting 1.5% in Q4 (Q3: +3.6% s.a. qoq). As a consequence, the external sector contributed 1.6 percentage points to the overall growth figure, contrasting the 12.2 percentage point detraction recorded in Q3.

Looking forward, economic activity is set to moderate in 2022 compared with 2021’s unprecedented growth. Despite the end of Covid-19 restrictions from late February, escalating inflation and impending tax hikes will weigh on consumer spending, while persistent supply-chain disruptions and ongoing trade-related issues with the EU will inhibit the external sector.

Commenting on the short-term outlook, analysts at Goldman Sachs stated:

“While high-frequency data suggests robust growth in January, we expect the drag from fewer vaccines to offset this, leaving our expected January GDP growth roughly flat. As such, following today’s data we leave our monthly growth projections unrevised in Q1, but allow the momentum from the strong December print to boost Q1 growth by 0.2 percentage points to 0.6%.”

Meanwhile, regarding implications for monetary policy, James Smith, economist at ING, commented:

“If anything, policymakers may need to revise up their near-term growth projections due to the milder Omicron impact. That suggests that the Bank is on track to hike at the next two meetings. But a slower growth outlook is one of the reasons why we suspect policymakers will deliver less tightening than markets currently expect over coming months.”

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