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Is the UK’s Economy starting to slow down?


The UK economy has reportedly slowed down between July and September. The key point to this slowdown has been problems with supply chains which has hindered the recovery.

ONS data shows consumer spending has increased as the UK economy reopens from lockdown. As we saw from the previous sector - from April to September - there has been an increase of 5.5% of the economy. But growth in the most recent three months was 1.3%, illustrating a clear halt in economic growth.

So what is the cause of this slowdown?

A key reason for this slowdown is the car industry. There has been a shortage of semiconductor processing chips that has caused bottlenecks in supply. Supply was postponed and car manufacturers production was then closed down. This led to global production of cars to see a cut of 700000 or more cars.

But recently we have observed that some service-based industries have simultaneously experienced a surge in growth. An example of this would be the housing sector, due to the stamp duty holiday which is a cut in the tax when selling a property and therefore the supply of houses would increase.

There have been increases in supply costs leading to inflationary pressure in the UK - as firms are still aiming to maintain high levels of output. The inflation rate is predicted at 4% for next year as suggested by the Chancellor and Bank of England - which is double the government's target rate.

What has caused the increase in the supply costs?

Last Friday, the volume of online job adverts rose 4%, compared with the previous week, and was 47% higher than pre-pandemic levels. This is likely to reflect the high levels of demand approaching Christmas and firms trying to meet that demand to maximise their profits.


However, the cost of labour has increased making it more difficult for firms to hire enough workers for the upsurge of demand. This will make Christmas an expensive one for the consumers this year.

It is understood that the UK economy is currently recovering and that it is expected to reach pre-pandemic levels next year. However, the UK has been seen to ‘lag’ behind many competitors. The UK’s closest neighbour France, which looks and feels economically most like the UK, is only 0.1% below where it was before Covid-19 forced governments to impose wide-ranging lockdowns. Although, the data shows more gloom for the UK, as it suggests that recent growth has nothing to do with improvements but only because of easing restrictions. This suggests that the temporary boost of demand will not last and will soon decline again.

There are still many issues in the UK, the most apparent being the labour shortages, as we have seen clearly from the fuel crisis experienced in the UK which has led to significantly higher fuel prices, making it difficult for people to transport easily.

The UK has also experienced a lot of supply issues and it seems to be a red light within the UK economy which has no response currently. The economy is expected to slow down even more within the next 6-9 months because of supply issues. The UK will also see rising utility prices and higher taxes - which will lead to consumers having less disposable incomes and therefore spending less - which will see a drop in demand.

Yet, the high rise in demand for the service sector has been said to make up for the losses in the pandemic. The UK is continuing to grow but it still stands a huge question of how quickly the UK will recover and will they be able to maintain that.

 

Written by Rohan Dhir

Research compiled by Ibrahim Ahmed

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