UK economy expanded by record 15.5% in last three months as it rebounds out of recession caused by Covid

THE UK economy grew by a record 15.5% in the three months to September as it continues to bounce back from recession.

The third-quarter growth was the highest since records began in 1955, according to the Office for National Statistics (ONS).

However, gross domestic product (GDP) is still down 8.2% compared to February’s pre-pandemic levels, and 9.7% down from the end of 2019.

The growth was also short of expectations by economists, who predicted GDP would grow by 16%.

On a monthly basis, GDP grew by 1.1% in September – its fifth consecutive increase, although the rate of recovery has slowed.

The economy grew by 2.1% the previous month after it was boosted by the Eat Out to Help Out scheme.

What this means for your personal finances

GROSS domestic product (GDP) is one of the main indicators used to measure the performance of a country’s economy.

When GDP goes up, the economy is generally thought to be doing well although today’s figures aren’t as strong as hoped.

Negative growth often brings with it falling incomes, job cuts and lower consumption.

The Bank of England (BoE) uses GDP as one of the key indicators when it sets the base interest rate.

This decides how much it will charge banks to lend them money, and is a way to try to control inflation and the economy.

So, for example, if prices are rising too fast, the BoE could increase that rate to try to slow the economy down. But it might hold off if GDP growth is slow.

The BoE cut interest rates twice in March due to coronavirus.

Base rate cuts means mortgage borrowers now typically benefit from lower rates, but at the other end of the scale savers earn less on their savings.

To measure GDP, the Office for National Statistics (ONS) collects data from thousands of UK companies.

Andrew Wishart, UK economist at Capital Economics, told The Sun the full impact of the crisis on jobs and businesses will only become apparent once the government starts to withdraw its support.

But analysts warn the economy is likely to shrink again at the end of the year after England entered a second lockdown.

There are hopes, however, that GDP will return to pre-pandemic levels quicker than expected if coronavirus vaccine trials prove successful.

It comes after the UK officially plunged into its “worst ever” recession in August 2020 after GDP shrunk by a record 20.4% in three months.

Economists consider two consecutive three-month periods where GDP falls as the technical definition of a recession.

Jeremy Thomson Cook, chief economist at Equals Money: “The fresh lockdown we are currently enduring has raised the risk of a double-dip recession through the beginning of 2021.

“The UK had started to build momentum but that looks to have dissipated now.”

Laith Khalaf, financial analyst at AJ Bell, added: “A strong rebound in the economy is clearly positive, but we should keep the champagne on ice for now.

“If you shut down an economy and then open it up, it’s not hugely surprising that you get a huge seesaw effect in quarterly GDP numbers.”

Chancellor Rishi Sunak said: “Today’s figures show that our economy was recovering over the summer, but started to slow going into autumn.

“The steps we’ve had to take since to halt the spread of the virus mean growth has likely slowed further since then.

“But there are reasons to be cautiously optimistic on the health side – including promising news on tests and vaccines.

“There are still hard times ahead, but we will continue to support people through this and ensure nobody is left without hope or opportunity.”

Jonathan Athow, deputy national statistician at the ONS, said: “While all main sectors of the economy continued to recover, the rate of growth slowed again, with the economy still remaining well below its pre-pandemic peak.

“The return of children to school boosted activity in the education sector. Housebuilding also continued to recover while business strengthened for lawyers and accountants after a poor August.

“However, pubs and restaurants saw less business after the Eat Out To Help Out scheme ended, and accommodation saw less business after a successful summer.”

Governor of the Bank of England predicts UK economy will ‘end this year probably around ten percent below where it was last year’ after releasing £150bn for crisis support

This post first appeared on thesun.co.uk