How the twin pressures of Brexit and commodity shortages damaged GDP | Economic growth (GDP)


If Britain’s recently downgraded third quarter economic performance figures show anything, it’s that consumers played the main role in the recovery as the industrial sector struggled under the twin pressures of Brexit. and global shortages of raw materials.

This shouldn’t be a surprise. Since the tight 2016 vote to leave the EU, companies, and in particular manufacturers, have failed to shift into second gear.

Supply chain disruptions come and go – remember the chaos caused by Donald Trump’s trade battles with China – while Brexit looms large. Trade figures show an 8.8% drop in goods exports from July to the end of September, at a time when global trade was booming as coronavirus restrictions eased.

France, which has an economy similar in size to the UK, was also experiencing supply chain issues that were holding back manufacturing. But the lack of computer chips and vital components for cars has only prevented French companies from enjoying an even greater increase in production and exports.

British manufacturing, meanwhile, was additionally suffering from a drop in the workforce after thousands of people from abroad left or were deterred from coming by draconian visa rules and the UK’s handling of Covid-19. Staff shortages have been compounded by what has become known as the Great Resignation, with nearly one in four workers planning a job change.

For manufacturers, the issue is less about families demanding time for long commutes and more about the high levels of long Covid that has hit their older skilled workers. Then there is the trend towards early retirement, largely linked to health issues.

France, meanwhile, has seen a massive return to work that has pushed the participation rate above pre-pandemic levels.

Official figures also point to another troubling trend in the UK that is eroding the luster provided by low unemployment and high levels of vacancies. The Office for National Statistics said revised business investment data showed money spent on upgrading factories, machinery and IT fell 2.5% in the third quarter – revised down from compared to a 0.4% increase when the ONS made its first single-digit stab.

This means that investment in companies large and small remains well below 11.7% compared to the fourth quarter of 2019, despite the chancellor, Rishi Sunak, who gave companies an investment tax break of one year. 130% value of profits to stimulate a recovery.

Weak business investment is an indicator of poor economic health and probably the most telling indicator of UK businesses’ reluctance to bet on a better future.

The figures for consumer spending growth, which were 2.7% higher than its previous estimate of 2%, were better news, making it the largest contributor to overall GDP growth in the quarter with some margin. Much of the extra spending was on restaurants and recreational activities, as previously hibernating households ventured outdoors during the summer and fall.

The revised figures showed that consumer spending was also more resilient in previous shutdowns, dating back to March 2020, indicating that the sharp fall in activity in the spring of last year was lower than first estimated and that the Spending momentum in 2021 was stronger.

The ONS said the loss of output during the initial phase of the pandemic was lower than expected and GDP was only 1.5% below its pre-pandemic peak in 2019, instead of the previously reported 2.1%.

That said, reliance on consumer spending meant that momentum was weaker than expected and the third quarter growth figure was just 1.1%, down from 1.3%.

As manufacturers shift from second gear to reverse in the fall – output fell 0.7% in the third quarter – and construction output follows the same negative trajectory – down 1% on the same period – consumer spending will have to soar in the new year to make up the difference.

Omicron probably paid for that.


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