UK economic growth to slow as Omicron set to fuel inflation and whack spending
Weaker spending in pubs, bars and restaurants will weigh down economic growth, according to forecasts by City economists.
A reduction in the number of diners driven by a combination of inflation eating into consumers’ real income and concerns about catching coronavirus will hit output in the food and accommodation sectors, according to Pantheon Macroeconomics.
The Office for National Statistics (ONS) publishes its latest estimates for GDP tomorrow.
Pantheon Macroeconomics expect economic growth to pull back to 0.2 per cent in October from 0.6 per cent in September.
A combination of weaker household spending and a “decline in property transactions after the return of the threshold for stamp duty land tax back to its pre- Covid level at the start of the month” reducing activity in the legal sector will cause the GDP print to dip, Pantheon said.
A spike in wholesale gas prices that has prompted a string of British energy providers to collapse will whack output in the energy sector around one per cent.
The health sector’s contribution to GDP is likely to fall due to fewer Brits seeing GPs in October, with demand easing after a flood of people attended appointments in September as surgeries started offering routine check ups again.
Analysts at Deutsche Bank expect the economy to grow by less than the consensus 0.4 per cent forecast as well, with the rate of growth coming in at 0.3 per cent in October.
Industrial production will jump 0.2 per cent “buoyed by modest growth in the manufacturing sector” although output in the sector will be tempered by supply chain breakdowns, shortages and soaring component prices, Deutsche Bank said.
“After a bigger bounce in September, October should see some unwind in activity, particularly given seasonal trends” in the services industry, Deutsche Bank added.
A slowdown in activity at services businesses will squeeze output due to the industry contributing around 80 per cent of output in the UK.
Tomorrow’s ONS GDP figures will be watched closely by officials at the Bank of England who are preparing for their next rate setting meeting on 16 December.
Uncertainty over the impact Omicron will have on the economy has prompted City analysts to push back their wagers on the Bank hiking rates for the first time in three years to February from this month.
The emergence of the Omicron variant has generated a cocktail of headwinds swirling over the UK economy. Consumers are expected to rein in spending due to reducing their social contact to avoid catching the new strain, while the variant is also likely to intensify inflationary pressures if it causes households to shun services and ramp up purchases of goods.
“Even without another lockdown, a rise in caution about the virus could hold back activity. Admittedly, timely mobility indicators offer little sign yet that the discovery of the new variant has prompted a fall in domestic activity,” said Paul Dales, chief UK economist at Capital Economics.