GDP figures encouraging despite cost of living concerns, claims free market think tank

Free market think tank the Institute of Economic Affairs has said the ONS’ new GDP figures are encouraging despite growing cost of living concerns.

New GDP figures released today by the Office for National Statistics (ONS) show that there was just 1.3% growth to UK GDP in the third quarter (1 July – 30 September) of this year.

There was also 0.6% growth in September.

This is still 2.1% lower than pre-pandemic levels, despite the easing of Covid restrictions during this period.

According to the ONS this points toward a GDP growth of 5.1% for the whole of 2021, down from the Office for Budget Responsibility’s prediction of 6.5% just a fortnight ago.

Commenting on the data for Q3 2021, Julian Jessop, Economics Fellow at free market think tank the Institute of Economic Affairs said: “The GDP data are now largely ‘old news’, but there were some encouraging signs.

“Quarterly growth inevitably slowed, to 1.3 per cent in the third quarter, after the 5.5 per cent jump in the second quarter. However, the monthly profile showed the recovery regaining momentum, and by September GDP was only 0.6 per cent below its pre-Covid level. This is still a much quicker recovery than most had forecast at the start of the year.

“Looking ahead, the timelier business and retail surveys for October show this positive momentum has carried over into the fourth quarter. Crucially, the strong jobs market seems to be offsetting the headwind from rising prices, and Covid cases are falling, meaning consumers are still able and willing to spend. There are also tentative signs that supply chain problems are easing.

“The recovery in the UK has fallen a little behind that in the EU again. However, the economic recovery in the EU is losing momentum and Covid cases there are rising, so the UK should catch up in the fourth quarter.

“The September data show small pick-ups in UK exports to the EU and in imports from the rest of the world, but overall trade remains depressed. Brexit is clearly a negative here: anything that makes trade more costly will reduce trade. Nonetheless, the size and duration of the long-term impacts are still uncertain.

“In summary, the UK economy remains on track to beat expectations this year. However, the cost of living is a growing concern for many households.

“The government should therefore focus on supporting the recovery rather than tightening fiscal policy prematurely: growth, not tax increases, is the best way to repair the public finances. The Bank of England also still needs to act soon to restore credibility and signal that it is not complacent about inflation.”