Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The UK’s economic outlook looks less bright this morning, as shortages, rising costs, and the possibility of more Covid restrictions all threaten growth.
KPMG has warned that GDP growth could more than halve next year if more restrictions are introduced to combat Omicron, depending on the severity of the new variant.
In its central scenario, the UK government would bring back social distancing restrictions in retail and hospitality venues, and encourages people to work from home if they can in January and February 2022. If that happened, the economy would contract around 2% in the first quarter of 2022, slowing overall growth next year to 2.6%, down from 6.7% this year.
In KPMG’s downside scenario, the threat of a significant rise in acute Covid-19 cases triggers another lockdown in early 2022. That would trigger a sharp fall in GDP, around 4.2%, in January-March 2022, dragging growth next year down to just 1.8%.
While growth momentum is expected to decelerate until a booster is rolled out to halt the rise in cases, the full impact of the new variant will depend on the rise in the number of acute Covid cases and any social distancing restrictions that are introduced, it explains.
Yael Selfin, chief economist at KPMG UK, says:
“The Omicron variant has elevated the level of uncertainty about the recovery path from the pandemic.
While the impact is not expected to be as severe as at the start of the pandemic, or even the beginning of this year, increased uncertainty and the potential reintroduction of social distancing measures could see output fall this month and during the first quarter of 2022.”
Some sectors may remain significantly impacted by the pandemic, compared with the overall economy, the report adds:
Additional travel restrictions and new pandemic hot spots are expected to see a slower and more protracted recovery in the sector. Rail travel will also be affected by a slower return of commuters to their workplaces.
Commuter footfall was still down by 22% in late November compared to pre-pandemic levels and is likely to fall as people are encouraged to work from home.
KPMG also warns that supply chains would come under more pressure, if the pandemic again leads to more demand for goods from locked-down consumers. Labour shortages have become a significant impediment to growth, it adds, as well as pushing up wages.
These concerns could deter the Bank of England from raising interest rates at its next monetary policy meeting later this month. Deputy governor Sir Ben Broadbent gives his view of the economic outlook this morning.
We also find out how UK and eurozone builders fared last month.
- 7am GMT: German factory orders for October
- 8.30am GMT: Eurozone construction PMI for November
- 8.30am GMT: UK construction PMI for November
- 11.30am: Bank of England deputy governor Sir Ben Broadbent gives a speech at Leeds University on “Outlook for growth, inflation and monetary policy”