The pound fell on Thursday to its lowest levels in 2021 against the US dollar, after the release of the GDP report which showed the UK economy grew slower than expected in the last quarter.

The pound had already fallen last week when the Bank of England didn’t raise interest rates, and fell again on Wednesday when higher US inflation pushed the dollar higher.

The longer-term UK economic outlook is creating concerns, after the NIESR thinktank warned earlier this week that Britain’s economy could potentially experience a long period of stagnation that will hurt household incomes and plans to level up the regions.

Chancellor of the Exchequer, Rishi Sunak, has warned about the challenges ahead as the economic recovery from the pandemic continues: “As the world reopens we know that there are still challenges to overcome. That’s why at the Budget last month I set out our plan to build a stronger economy for the British people. We’re continuing to support businesses, jobs and people so that we can achieve our vision of a high-skill, high-productivity economy where work is rewarded.”

Economic growth slowed to 1.3% in Q3

The UK economic recovery slowed in the third quarter of 2021. UK GDP rose by 1.3% between July and September, according to the Office for National Statistics. This is below the 1.5% expected by economists. Following the third lockdown, Britain’s recovery slowed due to the rising number of infection cases, the pingdemic and global supply issues.

In the third-quarter, as restrictions were being lifted, the economy expanded 5.5% in the three months to June.

Services recorded the fastest growth, with a 30% jump in business for hotels and restaurants which helped the GDP to rise by 1.6% over the quarter. On the other hand, manufacturing and construction weakened.

UK economy grew 0.6% in September

The UK economy did grow in September, which was better than expected. July GDP growth was revised to 0.2% , while August’s estimated growth went from 0.4% to 0.2%. This means the UK economy is 0.6% smaller than in February 2020.

Paul Dales of Capital Economics said that the rise in GDP in September shows that the UK economy gained some, but this will “fizzle out over the coming months.” He clarified that progress will slow the next 6-9 months as shortages persist and businesses and households’ spending power wanes due to higher taxes and increased utility prices. He added that if the Bank of England decides to raise interest rates, this won’t be above 0.5% during 2022.

The slowdown in third quarter growth follows the disappointing news from that Bank of England that interest rates won’t be raised any time soon, despite rising inflation. The Bank wants to wait and see how the economy will respond following the end of the furlough scheme in September, as well as other persistent issues such as the supply chain crisis.

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