After the rebound in Q2 associated with the lifting of lockdown, activity in the United Kingdom slowed in the summer (+1.3% after +5.5%) settling at –1.8% compared to its average level for 20191. The recovery continued mainly as a result of buoyant household consumption and government spending. In contrast, trade has remained depressed since the implementation of Brexit on 1st January 2021, especially exports, which declined again in Q3. Overall, investment has been relatively dynamic since the crisis, but has presented some contrasting situations in the different institutional sectors.

Since early Q4, the short-term outlook has deteriorated: the United Kingdom has faced growing supply chain difficulties, due to world shortages of inputs, and also hiring difficulties, which again were accentuated by Brexit. The labour market is therefore showing signs of tension. In addition, inflation rose sharply (+4.2% year-on-year in October after +3.1% in September), in the context of a global increase in energy prices. At the same time, the robustness of wages is likely to accentuate inflation further: the nominal median wage increased by +4.9% year-on-year in October (against an average annual increase of 3.2% between 2017 and 2020), and the workforce shortage is exerting upward pressures. Lastly, uncertainty surrounding the worsening health situation could aff ect growth.

At the end of 2021, activity in the United Kingdom is expected to slow further (+0.6%). Growth is likely to remain fairly modest in H1 2022, with household consumption still the main driving force, though limited by the increasing uncertainty over the health situation and the persistence of inflation in H1 2022. Corporate investment is likely to remain gloomy, penalised by supply chain problems and the increase in social contributions to be introduced from Q2 2022. In addition, exports are expected to remain depressed, and unlikely to close the gap in relation to imports.