- A robust 0.9% month-on-month (m/m) rise in GDP in November left the economy, on an output basis, 0.7% bigger than its immediate pre-pandemic size. But a drag on activity from the Omicron variant means that output probably fell back in December.
- However, the impact from Omicron on output is likely to be much smaller than previous COVID-19 waves and the EY ITEM Club thinks the economy will bounce back quickly. GDP is likely to rise convincingly back above the pre-Omicron level by early spring.
Martin Beck, chief economic advisor to the EY ITEM Club, says:
“GDP growth of 0.9% month-on-month (m/m) in November was a significant advance on October’s 0.2% m/m rise and confirmed the positive signals sent by a strong gain in retail sales and a healthy set of PMI surveys. The rise in GDP also marked an important milestone, leaving the economy 0.7% bigger, on an output basis, than in February 2020, just before the pandemic took hold in the UK.
“Services made up just over half of November’s GDP growth, expanding 0.7% m/m. Professional services played the prime role, while stronger retail activity boosted transport and storage. Industry and construction grew 1% m/m and 3.5% m/m respectively.
“Data on mobility and social spending in December suggest that the rapid spread of the Omicron Covid variant caused some consumers to cut back social consumption. And the number of infections meant large numbers of people were on sick-leave or forced to isolate – the ONS estimates 3% of the workforce were in this position in late December. The drag on activity will have been mitigated by a boost to health output from a rise in COVID-19 tests and vaccinations. But the EY ITEM Club expects GDP to have fallen modestly in December.
“However, with Omicron rapidly moving through the population, the economic impact is likely to be short-lived. Activity should rebound strongly as infection numbers fall, with GDP rising convincingly above pre-Omicron levels in early spring.”