Service sector rebounds to pre-pandemic highs but tighter restrictions threaten recovery: reaction

Britain’s crucial services sector has finally bounced back to where it was nearly two years ago before the pandemic hit, according to official estimates, but experts have warned of the threat posed by tighter restrictions.

While the rate of overall economic growth slowed down in October, the services sector, which accounts for about four-fifths of the UK economy, managed to reach its February 2020 levels again for the first time.

The recovery is, however, running at two speeds. Consumer-facing services, such as restaurants, are still 5.2 per cent below their pre-pandemic levels, while all other services are 1.4 per cent ahead.

The news came as the Office for National Statistics (ONS) revealed that gross domestic product (GDP), a key measure of the economy, rose by 0.1 per cent in October.

The sprawling services sector accounts for about four-fifths of the UK economy and includes the likes of hospitality businesses. Picture: Lisa Ferguson

That is a marked slowdown since September when the economy grew by 0.6 per cent. It is also well below the 0.4 per cent growth that analysts had forecast, according to a consensus provided by Pantheon Macroeconomics.

It raises further fears for what might happen in data released in the months ahead, as the Omicron variant is likely to put a further dampener on the economy.

James Smith, research director at the Resolution Foundation, said: “[The] GDP data shows a worrying slowing in growth in October, meaning that monthly output is still 0.5 per cent below its pre-pandemic level as on-going supply-chain disruptions continue to hold back production in some sectors.

“Weak growth in October and the more recent emergence of Omicron mean hopes that either the health or economic pain of this crisis would be all over by Christmas have been dashed.

“The possibility that restrictions will need to be tightened, combined with high inflation and rising energy bills, means government should prepare for fresh targeted economic support that may be necessary in the months ahead.”

Alpesh Paleja, lead economist at the CBI, said: “Growth disappointed in October, reinforcing concerns about the resilience of the UK's economic recovery to the Omicron variant and the impact of further restrictions.

“We need to create consistency in our approach and build confidence by reducing the oscillation between normal life and restrictions as we learn to live with the virus and its variants.”

Production output decreased by 0.6 per cent in October 2021, with electricity and gas down by 2.9 per cent, and mining and quarrying down by 5 per cent.

GDP, overall, remains 0.5 per cent below its February 2020 levels.

ONS chief economist Grant Fitzner noted: “While GDP growth slowed in October the UK health sector again grew strongly while second-hand car sales and employment agencies also boosted the economy.

“Taken as a whole, the dominant services sector reached its pre-pandemic level for the first time in 20 months.

“These gains were offset by a drop in restaurants, which fell back after a strong summer, and reduced oil extraction and gas use.

“Construction also saw its biggest drop since April last year, with notable falls in housebuilding and infrastructure work, partly driven by shortages in raw materials.”

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