- Large revisions to the data for 2020 mean that the gap to the pre-pandemic level of GDP is now estimated to have been 1.5% in Q3, not 2.1%. But the new data shows an even greater loss of momentum in Q3.
- In Q3, the household savings ratio fell back to its lowest level since the pandemic began. But with the Omicron variant appearing to cause greater caution around social consumption, the normalisation of consumer behaviour is set to pause.
Martin Beck, chief economic advisor to the EY ITEM Club, says:
“The Quarterly National Accounts reported that the economy grew by 1.1% quarter-on-quarter (q/q) in the third quarter, down from the initial estimate of 1.3%. But significant upward revisions to 2020 data meant that GDP was now estimated to be 1.5% below its pre-pandemic level in the third quarter, not 2.1% lower. The expenditure breakdown for the third quarter revealed a stronger contribution from consumer spending, but a greater drag from de-stocking, caused by supply chain disruption.
“The savings ratio fell from 10.7% in Q2 to 8.6% in the third quarter. Although this was still some way above the 2010-2019 average of 7.3%, it was the lowest figure reported since the pandemic began and suggested that consumer behaviour was increasingly normalising prior to the emergence of Omicron. Given the squeeze on household finances from high inflation, the consumer recovery is becoming increasingly reliant on households spending some of their ‘excess’ savings. But high-frequency data points to a more cautious consumer mindset in recent weeks, particularly regarding social consumption activities, as they digest the implications of the new variant.
“The recent rise in COVID-19 case numbers will also weigh on near-term activity by forcing more people to self-isolate. But while this is likely to mean that the level of output falls in the second half of December and with the Government undecided on whether to reintroduce restrictions, the outlook for the early part of 2022 remains uncertain.”