UK growth slowed sharply in the third quarter with output 2.1 per cent adrift of pre-pandemic levels, which compares with France’s lag of only 0.1% and is a big shortfall relative to other major economies.

The Federation of Small Businesses warned the slowdown in growth, revealed in official data yesterday, showed the “scale of the mammoth task” facing the UK, also highlighting the country’s trade deficit.

Figures published by the Office for National Statistics yesterday show that quarterly UK GDP growth slowed to 1.3% in the three months to September, which was a period of significant reopening of the economy as coronavirus-related restrictions were eased. Growth was 5.5% in the second quarter.

UK GDP in the July to September period was 2.1% below its level in the final three months of 2019 – the last full quarter before the coronavirus pandemic hit. This compares poorly with other countries in the Group of Seven leading industrialised economies.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, tweeted: “The UK economy has reclaimed its status as the G7’s laggard. Q3 GDP was 2.1% below its Q4 19 level, whereas it was 1.4% above in the US and only 0.1% below in France..."

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The House of Commons Library published a research note yesterday showing Italy was in the third quarter only 1.4% below its pre-pandemic peak in output, with Germany and Canada respectively 1.1% and 1.5% adrift.

Japan has yet to publish third-quarter GDP data but Mr Tombs noted it had seen a smaller shortfall than the UK, compared with pre-pandemic levels, in the second quarter.

International trade was a drag on UK growth during the third quarter, with exports falling and imports rising.

Accommodation and food services output rose by 30% in the third quarter, while the arts, entertainment and recreation services sector grew by19.6%. The ONS noted this followed the "relaxation of almost all coronavirus public health restrictions", noting the effect of this easing on indoor hospitality.

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Wholesale and retail trade output fell by 2.5% in the third quarter, with the ONS declaring this was “driven by weak consumer spending”.

Ed Monk, associate director at fund management group Fidelity International, said: “The UK economy continues to grow but the pace of the recovery has slowed. The third quarter numbers cover the end of the summer when the economy was opening up – reflected in a 30% jump in accommodation and food services activity. Those effects are unlikely to be repeated, making the job of recovering the economy back to its pre-pandemic level difficult from here. GDP remains 2.1% below its level from the end of 2019 and we may be deep into 2022 before that level is seen again.”

He added: “All attention now turns to the crucial lead-up to Christmas but it doesn’t look full of festive cheer. Large retailers are already warning on supply-chain issues and consumers are facing steep price rises for everyday items, which aren’t expected to slow down anytime soon. A slowing recovery and increasing inflation is a troubling mix for policymakers in both Westminster and the Bank of England.”

The UK’s trade balance fell to a deficit of 1.2% of GDP in the third quarter, with net trade detracting from quarterly growth, the ONS figures show.

In volume terms, the UK's total exports fell by 1.9%. The ONS noted this had been “driven by a fall in exports of goods (-5.8%), particularly in unspecified goods, machinery and transport equipment, and material manufactures”.

Total import volumes rose 2.5% in the third quarter.

Expressing concern over the slowdown in UK growth and the trade deficit, Federation of Small Businesses national chairman Mike Cherry said: “These deeply concerning figures point to the scale of the mammoth task that lies ahead in securing a sustainable economic recovery.”

He added: “As they attempt to focus on getting back to full strength, small firms are up against supply-chain disruption, spiralling costs and debilitating skills shortages.

“Unfortunately, it’s against this backdrop that the Government has decided to hike national insurance contributions and dividend taxation.”

The FSB highlighted its recent research showing 79% of smaller firms that will be impacted by the imposition of checks on goods imports from the European Union next year, as a result of Brexit, “are not fully ready to comply with new paperwork”.

It also noted that 21% of small exporters had temporarily or permanently stopped exporting to the EU. The FSB added that a further 7% were considering stopping sales to the bloc.

UK GDP rose by 0.6% month-on-month in September, having fallen by 0.2% in July and risen by 0.2% in August.

Danni Hewson, financial analyst at stockbroker AJ Bell, said: “Household spend has played a huge part in propelling the UK economy forward over the last six months, but those households are now feeling the squeeze of rising prices. Government support measures have tapered off and trade is, in a word, disappointing.”

Martin Beck, senior economic adviser to the EY ITEM Club think-tank, noted the boost to GDP in September from a return to face-to-face appointments with doctors and increased Covid testing.

He said: “GDP rose by 0.6% month-on-month in September, the strongest increase in three months. But this strength was largely due to a robust increase in health output, caused by a combination of a rise in the number of face-to-face GP appointments and an increase in the number of Covid-19 tests carried out in September.”

Mr Beck also cited the drag on growth from international trade, and viewed business investment as disappointing.

Business investment rose only 0.4% in the third quarter, leaving it 12.4% below its pre-pandemic levels.

Mr Beck said: “September’s rise in output meant that GDP increased by 1.3% quarter-on-quarter in Q3 as a whole. This was softer than the EY ITEM Club had expected, reflecting downward revisions to the July and August outturns. As in Q2, consumer spending was the key driver, likely underpinned by the continued rebound in social consumption as Covid-19-related restrictions were removed. But net trade exerted a sizeable drag, while the rise in business investment disappointed.”

He added: “With the easy gains from reopening the economy exhausted and policy support being withdrawn, the recovery has entered a much tougher phase. In addition, the situation has been made harder by the escalation of supply-chain disruption and the increases in inflation, which will eat into household spending power. This latter factor is the main reason why the EY ITEM Club is set to pare back GDP forecasts in its forthcoming autumn forecast report.

In July, the EY ITEM Club projected growth of 7.6% this year and expansion of 6.5% in 2022.

Mr Beck said: "While the pace of quarterly GDP growth is likely to continue to slow over the next few quarters, it should still compare favourably to the decade leading up to the pandemic, driven by some consumers and firms spending money they have accumulated over the past 18 months.”