UK recovered quicker than forecast after first Covid lockdown
Britain’s economy staged a faster recovery in the third quarter of the year than was first estimated, after a rapid return to work after the first lockdown.
The Office for National Statistics said national income, or GDP, increased by a record 16% in the three months to the end of September rather than the 15.5% in its first estimate. This leaves the economy 8.6% smaller than the year before, rather than the 9.7% initially estimated.
A stronger increase in government spending, a boost to the demand for goods and services from employees returning to work and a small rise in business investment contributed to the improved picture of the economy, the ONS said.
In a move that indicates the panic households suffered after the first lockdown continued to ease in the third quarter, the ONS said the savings ratio – which shows how much people save as a proportion of their income – decreased to 16.9% after reaching a record 27.4% in the second quarter.
Ruth Gregory, the UK economist at the consultancy Capital Economics, said the still high level of savings meant there was more scope for households to increase spending in the coming months.
“At least the drop in the saving rate left it far above its long-run average of 8.0%. That implies there is plenty of scope for household spending, and GDP, to rebound strongly once the restrictions are lifted,” she said.
The improved recovery shows that the government’s efforts to get the economy moving during the summer months, including the eat out to help out subsidy in restaurants and cafes, had a greater effect than first thought.
However the public finances appear to have taken a bigger hit as a result, with the government’s borrowing rising to a 50-year high.
The latest figures for the public finances in November showed the public sector net borrowing reached £31.6bn, which is £26bn more than in November 2019. The ONS said it wasthe highest November borrowing and the third-highest figure since monthly records began in 1993.
Measures introduced by the government to cut VAT for hospitality firms and suspend business rates payments played a large role in the £3.8bn drop in tax receipts.
The level of borrowing in the current financial year climbed to £241bn, up £188.6bn on the same period last year, pushing the annual deficit to 11.2% of GDP and the figure for general government gross debt to 102.8% of GDP at the end of November.
The chancellor, Rishi Sunak, said: “As part of our plan for jobs we’ve invested £280bn to protect millions of jobs and businesses across the UK.
“This is the right thing to do to protect lives and livelihoods during this acute phase of the crisis. When our economy recovers, it’s right that we take the necessary steps to put the public finances on a more sustainable footing so we are able to respond to future crises in the way we have done this year.”
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