UK economy bounces back in summer but faces wintry chills

LONDON (AP) — The British economy remained nearly 10% smaller at the end of the third quarter despite posting a record bounceback in the summer, when many of the restrictions that had been placed on businesses to control the pandemic were lifted. The imposition of new limits on public life in the autumn means the economy will likely end the year even smaller.

The Office for National Statistics said Thursday that the economy grew by 15.5% in the July to September period. Though that was in line with market expectations, the data shows that the recovery was already running out of steam in September, before a resurgence of the coronavirus led to the economically damaging reimposition of new restrictions.

The third quarter growth did not make up for the record 19.8% slump of the second quarter, when much of the economy was shuttered to fight the coronavirus, and the 2.5% fall in the first three months of the year when the virus started to affect everyday life. Despite the third-quarter improvement, the statistics agency said the economy was still 9.7% below where it was at the end of 2019.

The worry is that the economy will shrink again over the winter months after the resurgence of the virus led to fresh curbs on everyday life across the U.K. and amid uncertainty around whether a post-Brexit trade deal with the European Union will be reached.

The new restrictions come at a particularly inopportune time for many retailers, with Christmas just around the corner.

Under the terms of the current lockdown in England, nonessential places such as pubs, restaurants, hairdressers, golf courses, gyms, swimming pools, entertainment venues and stores selling items like books, clothing and sneakers, must remain closed until at least Dec. 2. Unlike the spring lockdown, schools and universities in England are remaining open this time, as are construction sites and factories.

The government has responded to the new curbs, announcing that its generous salary support scheme, which sees it paying 80% of the salaries of workers retained by firms rather than fired, will be extended through March.

Treasury chief Rishi Sunak acknowledged that the health measures taken in the past few weeks “mean growth has likely slowed further since then.”

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

In addition to virus developments, the British economy remains hobbled by uncertainty over the future trade relationship between the U.K. and the EU. Discussions between the two sides are continuing Thursday.

Though the U.K. left the EU on Jan. 31, it remains within the bloc’s tariff-free single market and customs union until the end of the year. For a deal to pass the necessary legislative hurdles, an agreement has to be secured soon, potentially over the next few days.

A trade deal would ensure there are no tariffs and quotas on trade in goods between the two sides, but there would still be technical costs, partly associated with customs checks and non-tariff barriers on services.

The government’s current thinking on Brexit is unclear, and appears to have been complicated by bitter infighting within Prime Minister Boris Johnson’s 10. Downing Street operation.

Late Wednesday, Lee Cain announced he was quitting as director of communications, a move that has sparked speculation that Dominic Cummings, Johnson’s top adviser, could soon leave, further weakening the pro-Brexit camp. Both Cain and Cummings worked together on the 2016 Brexit referendum campaign that was largely fronted by Johnson.

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