The economy is tantalisingly close to returning to pre-pandemic levels, now just 0.5 per cent off recovery. But this last hurdle may be the most difficult to overcome. The economy was more or less at a standstill in October, with GDP climbing by a measly 0.1 per cent. Services output grew by 0.4 per cent, mostly thanks to an uptick in GPs heading back to their surgeries for face-to-face appointments.
While services recovered to pre-pandemic levels in October, the underlying figures don’t look so rosy: production output fell 0.6 per cent, while construction took its biggest hit since the first lockdown, falling by almost 2 per cent.
These are disappointing figures in their own right, made far worse by what we know is going to hit businesses in the weeks ahead. October’s figures don’t factor in the Omicron variant — which didn’t become a concern until last month and was only just used to usher in Plan B restrictions this week. October data won’t account for increased travel restrictions, new mask mandates, work from home guidance or the introduction of vaccine passports for large venues — not to mention wobbling business and consumer confidence in the face of possible further crackdowns and restrictions.
With growth so lacklustre before Omicron’s impact, it wouldn't be surprising to see GDP fall again in the winter months: while businesses have proven they can adapt incredibly quickly to Covid restrictions, plenty of companies (especially in retail and hospitality) were relying on a much better Christmas season to make up for last year’s profit fall. With another worker exodus from city centres and Christmas parties being cancelled in the name of caution, December just became a far less merry prospect for economic recovery.
Time will soon tell, both on GDP and another looming concern: inflation. This week, the Bank of England’s deputy governor, Ben Broadbent, suggested that inflation next April could ‘comfortably exceed’ 5 per cent, once again upping unofficial forecasts from the BoE about just how high prices might rise.
Omicron is also stoking inflation fears. As restrictions return, consumer demand may tilt again towards goods, rather than services, putting price pressure on materials already going through the roof.
What might the BoE do to stop a spike? At the moment, it seems like not very much, with economists forecasting that a rate rise isn’t on the cards until next year. With the economy slowing down even before the new variant (and subsequent restrictions) are factored in, the monetary policy committee is loath to make any moves that might further impede growth. But with inflation set to damper any gains that might be felt by rising GDP, there are increasingly no good options — only trade-offs.