UK economy bounces back from recession as it records growth of 15.5% in last quarter
According to the Office for National Statistics (ONS), the UK economy has bounced back from recession with record growth of 15.5% in July to September.
The UK economy has seen a growth of almost a fifth during the third quarter of the year, as the end of lockdown restrictions and the government’s Eat Out to Help Out scheme came into effect.
This is the largest quarterly expansion on record.
The increase marks the first economic uplift after two consecutive quarterly falls, as government restrictions put in place to try and curb the number of coronavirus cases dramatically reduced economic activity. The return to growth comes after a six-month slump induced by the first coronavirus lockdown. However, the expansion was not enough to reverse the damage caused by the pandemic.
The country’s economy is still 8.2% smaller than before the virus struck, revealed ONS.
In September, growth was 1.1%, marking the fifth consecutive month of growth, however, this is a lower level of growth compared to the summer months.
Jonathan Athow, Deputy National Statistician at the ONS said: “While all main sectors of the economy continued to recover, the rate of growth slowed again, with the economy still remaining well below its pre-pandemic peak. The return of children to school boosted activity in the education sector. Housebuilding also continued to recover, while business strengthened for lawyers and accountants after a poor August. However, pubs and restaurants saw less business after the Eat Out to Help Out scheme ended and accommodation saw less business after a successful summer.”
Ivan Petrella, Associate Professor of Economics at Warwick Business School, said: “The latest GDP data suggests that the economy partially bounced back during the summer months after the large shock caused by coronavirus. It is welcome news and these figures are in line with those reported by other advanced economies. However, looking at more frequent indicators of economic activity suggests the economy has been back in negative territory since October, with the current lockdown further exacerbating the contraction.
“There is no sign we are out of the recession yet and there is a lot of uncertainty for the months to come. Economic recovery will go hand in hand with resolving the health crisis associated with the pandemic. The furlough scheme and the more general income supporting policies put forward by the Treasury have clearly helped to avert a much more severe contraction of the economy. Given the current situation, the further measures announced by the Treasury over the last few weeks are clearly a much needed and welcome intervention.”
Jeremy Thomson Cook, Chief Economist at Equals Money said: “Despite UK GDP rebounding by a record 15.5% in Q3, the size of the UK economy remains around 9.7% below the level that it entered 2020. It also compares unfavourably with our G10 competitors – double that of France, Germany and Italy and three times the deficit seen in the US.
“You can see this reflected in all sectors, with services, construction and manufacturing all between 6-12% below the level they entered this year at. This solidifies our expectation that on a relative basis, the UK economy will rebound a lot faster should recent news around an effective Covid-19 vaccine be true, as current policy has now been shown to be underpowering the UK recovery.
“Of course, this data is rather old now and the fresh lockdown we are currently enduring has raised the risk of a double -dip recession through the beginning of 2021; the UK had started to build momentum but that looks to have dissipated now.”
Luke Davis, CEO of SME investment house IW Capital, discusses the importance of SME growth to economic recovery, and what can be done to help small businesses thrive: “One area of potential rapid recovery will come from the SME community. They make up 99.9% of private sector businesses, and so their financial growth and the number of people they continue to employ is of the utmost importance to the overall health of the UK economy. Small firms already employ over 16million people in the UK, and pre-pandemic, this sector was growing at a faster rate than the overall job market. A return to this would provide a welcome boost.
“The rise in GDP figures will be encouraging for many small business owners, who have remained resilient to survive this period, and will now be looking forward to growth and opportunity. We have already seen billions spent by the Government, and now may be the time to take a proactive – rather than reactive – step to boost the economy back to where we were before the pandemic.
“One way of doing this would be to extend tax reliefs on SME investments. The Enterprise Investment Scheme (EIS) is one of the UK Government’s most successful initiatives in terms of driving investment into high-growth early-stage companies. It has helped produce some incredible business successes that otherwise may not have got off the ground, due to the reluctance of banks to lend to these firms. Growing SMEs offer huge opportunities in terms of job creation, and increasing the tax efficiencies of EIS is a certain way to increase investment into these firms.
“When the EIS income tax relief was extended from 20% to 30% in 2011, the amount invested in small companies through the scheme saw a tremendous jump. If the Government were to extend the scope or tax efficiencies of the scheme again, it could really help catalyse private investment – a crucial source of growth finance.
“With an economic contribution of over £2tn, the success of the UK economy as a whole may in future hinge on the prosperity of SMEs, start-ups and high-growth firms.”