london skyline

United Kingdom GDP Q3 2021

United Kingdom: Economic growth slows in Q3

GDP growth waned to 1.3% on a seasonally-adjusted quarter-on-quarter basis in the third quarter, from 5.5% in the second quarter, slightly undershooting market expectations. The economy is still 2.1% below its pre-pandemic level—a worse performance than most other major economies.

Household spending increased 2.0% in the third quarter, which was below the second quarter’s 7.1% expansion. The weaker reading was likely the result of soaring Covid-19 case numbers which saw many people being forced to self-isolate. Public spending expanded 0.9% (Q2: +8.1% s.a. qoq). The marked slowdown was due to a tough base effect, after government expenditure surged in Q2 as schools reopened. That said, non-Covid health spending grew strongly in Q3. Meanwhile, fixed investment growth was stable at 0.8%. However, the reading was largely driven by government investment, with business investment subdued—potentially in part on persistent political tensions with the EU.

Exports of goods and services deteriorated, contracting 1.9% in Q3 (Q2: +6.2% s.a. qoq), likely hampered by supply constraints and shortages of staff and inputs. Conversely, growth in imports of goods and services increased slightly to 2.5% in Q3 (Q2: +2.4% s.a. qoq), marking the best reading since Q4 2020.

On an annual basis, economic growth moderated to 6.6% in Q3, compared to the previous quarter’s 23.6% growth.

The economy is set to slow slightly further in the final quarter as both global and Brexit-related supply-chain issues hamper activity. Government spending momentum is also likely to continue to ebb as demand for non-Covid health services normalizes, while tensions with the EU over the Northern Ireland Protocol could continue to weigh on private investment. However, consumer spending should provide support.

On the political frictions with the EU, George Buckley, economist at Nomura, said:

“It may just be a matter of timing before the UK invokes Article 16 of the Brexit agreement. The UK sees the threshold of ‘serious economic, societal or environmental difficulties’ as breached, and would like to remove checks and documentation on goods travelling between Northern Ireland and the mainland, as well as the ECJ’s oversight of the protocol. The EU’s response will likely depend on how far-reaching the UK’s proposals are […]. A termination of the Trade and Cooperation Agreement (TCA) would be the most severe outcome but would be subject to a 12m notice period. Real exports were still 22% down vs. Q4 2019 in this week’s GDP report—the ongoing uncertainties about the state of play of the TCA are unlikely to help. Studies generally suggest an additional 2% long-run GDP loss without an agreement.”

Free sample report

Access essential information in the shortest time possible. FocusEconomics provide hundreds of consensus forecast reports from the most reputable economic research authorities in the world.
Close Left Media Arrows Left Media Circles Right Media Arrows Right Media Circles Arrow Quote Wave Address Email Telephone Man in front of screen with line chart Document with bar chart and magnifying glass Application window with bar chart Target with arrow Line Chart Stopwatch Globe with arrows Document with bar chart in front of screen Bar chart with magnifying glass and dollar sign Lightbulb Document with bookmark Laptop with download icon Calendar Icon Nav Menu Arrow Arrow Right Long Icon Arrow Right Icon Chevron Right Icon Chevron Left Icon Briefcase Icon Linkedin In Icon Full Linkedin Icon Filter Facebook Linkedin Twitter Pinterest