UK: Historic economic growth only a snapshot

„Historically“, the strong growth of the British economy with 15.5 percent in the third quarter is certainly all-time high. Never before in the country’s post-war period has economic output grown so strongly in a quarter. The UK thus joins the group of numerous European economies that also achieved double-digit economic growth in the summer quarter. However, in the context of the equally „historic“ collapse of the economy in the spring, which cost the UK over 20 percent of its economic output, the current result is far less impressive. Over the summer, the British economy was only able to make up just over half of the losses caused by the severe and long corona lockdown. Economic output is still almost ten percent lower than in the final quarter of last year. In Europe, only Spain has been hit so hard.

And the strong rebound cannot be continued into the future either – on the contrary: a powerful second corona wave has also piled up in the UK, which the British government recently had to counter with a new (partial) lockdown. It is already foreseeable that the revived infection control measures will abruptly slow down the recovery from the summer and that economic development will remain weak until next spring. The economy will probably shrink significantly again in the current quarter. One positive aspect at most is that the slump is unlikely to be as dramatic as in the previous spring.

On the other hand, however, the still unresolved brexite threatens further growth risks. If the UK were to leave the domestic market at the turn of the year as planned, additional slumps in growth can be expected. Even if a free trade agreement with the EU is reached at the last minute, frictions in foreign trade could not be completely prevented. We therefore continue to expect the final exit to be postponed until well into next year. By then, the economy should be strong enough again to cushion any braking effects. If, on the other hand, the UK were to leave the common market in a few weeks‘ time without a contract being terminated, there is even a fear that British economic output for 2021 as a whole would shrink again. That would then also be „historic“.

 

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