Economy grows at fastest-ever rate, but hurdles loom

by Marc Shoffman from interactive investor |

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GDP grew 15.5% in the third quarter, but experts say a W-, L- or V-shaped recovery is likely.

The UK economy grew at its fastest rate on record in the third quarter of 2020 to bounce out of recession, but there are fears of further hurdles to recovery.

Office for National Statistics data shows UK gross domestic product (GDP) grew by 15.5% in the three months to September.

It came after the economy had contracted by a record 19.8% in the second quarter of 2020, pushing the UK into recession.

Analysts and economists have been debating whether a UK recovery, if any, could be L-shaped or even V-shaped but now the consensus is pointing towards a W.

This is because monthly GDP figures were not as impressive.

Monthly GDP grew by 1.1% in September 2020 and is still 8.2% below pre-pandemic levels, the ONS said.

The services sector, which has been largely shut down for most of this year, grew by 1% in September 2020, following growth of 2.4% in August but is still 8.8% below its levels seen in February before the coronavirus outbreak.

Similarly, GDP in the construction and production sector is down 7.3% and 5.6% respectively compared with February.

This data also came before the UK entered its second lockdowns, which are expected to push the economy back into recession.

Commentators says the positive news of a vaccine will not be enough to boost the economy in the coming months.

Rupert Thompson, chief investment officer at wealth manager Kingswood, says: “While the latest vaccine news means there is now light at the end of the tunnel, the economy is far from out of the woods. 

“The lockdown is likely to cause a double dip in the fourth quarter before the recovery resumes again in the new year.”

Azad Zangana, senior European economist and strategist for Schroders, warns more restrictions in the new year could also sour any economic resurgence.

Zangana says: “While we welcome the great news of the success achieved so far in the production and testing of vaccines, it may be some time before sufficient immunisation can be achieved.

“It appears this is unlikely to occur before the spring. As temperatures continue to fall in winter, this and the behaviour of people to congregate indoors in poorly ventilated venues will help the virus spread.

“We expect current restrictions to bring down the daily number of confirmed cases. However, there is a strong possibility that a return to partial lockdowns may be required again in the new year, which would delay the economic recovery.”

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