UK economy surpasses pre-pandemic levels

The UK economy strengthened well beyond economists' expectations in November to surpass pre-Covid levels for the first time, official figures revealed on Friday.

Graph of UK growth during Covid
The Office for National Statistics (ONS) said gross domestic product expanded by 0.9% over the month and was 0.7% higher than it was in February 2020.
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Plan B impacts growth

While business leaders welcomed the growth, they warned that the spread of the Omicron variant in December and the subsequent introduction of Plan B restrictions on working life could have dampened prospects last month.Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics, said: "GDP almost certainly dropped in December, as households hunkered down in response to the Omicron variant."But Chancellor of the Exchequer Rishi Sunak said the stronger growth was "a testament to the grit and determination of the British people".

Services lead the way

Services - led by professional, scientific and technical activities - construction and manufacturing sectors all showed healthy growth.Manufacturing was the largest contributor to production growth, increasing by 1.1%, with positive figures returned by nine of the 13 manufacturing sub-sectors.Production of motor vehicles increased by 7.8%, suggesting that the supply-chain problems that dogged the industry for much of 2021 might have eased.

'An economy that wants to grow'

Alpesh Paleja, Lead Economist at the Confederation of British Industry (CBI) said that while it was encouraging to see the economy picking up in November, the data had rather been overtaken by subsequent events."Activity is very likely to have taken a hit in December, as the spread of the Omicron variant and subsequent restrictions disrupted operations in certain sectors," he said. “As we kick off the new year, the near-term outlook is also clouded by additional challenges: shortages of labour – exacerbated by sickness absence, supply-chain disruption and a cost of living crunch for households.“Implementing Plan B in December was the right thing to do, but with Covid clearly here to stay, the Government must now act to prevent the need for further restrictions on activity."This includes providing clearer forward guidance to support business adaptation, prioritising mass-testing over mass self-isolation, and ensuring that travel controls are proportionate so that the UK remains open to the rest of the world.”Kitty Ussher, Chief Economist at the Institute of Directors, said that although the ONS report did not cover changes in behaviour caused by the Omicron variant, it "nevertheless demonstrates that fundamentally this is an economy that wants to recover".  She added that risks that recovery this year came from inflationary price and cost pressures on both businesses and households.

Challenges remain

Suren Thiru, Head of Economics at the British Chambers of Commerce, agreed that November's growth was likely to be followed by a modest fall in output in December and January because of the Plan B restrictions.“While the UK economy should rebound once Plan B measures are lifted, surging inflation and persistent supply-chain disruption may mean that the UK’s economic growth prospects remain under pressure for much of 2022," he said.“The Government must do all it can to support the economy through this challenging period. If the current restrictions persist or are tightened further then a more comprehensive support package that matches the scale of any new measures, will need to be put in place.”

Read more news and views from David Sapsted.

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