The UK economy grew faster than expected with GDP growth of 1.3% in the last quarter of 2021 compared to the third quarter, as the health sector saw a boom in business with the arrival of the Omicron variant.
The Office for National Statistics estimated the GDP growth for Q4 2021 to be approximately 1%.
The 1.3% rise in GDP was a step in the right direction for the economy against the 0.9% GDP Growth in Q3 of 2021.
However, compared to Q2 2021’s GDP growth of 5.6% on the back of the economy’s rebound from the pandemic and its restrictions, the Q4 GDP rise is still optimistic.
Increased trips to the clinic at the start of Q4, a significant rise in coronavirus testing and tracing and the continuation of the vaccination programme were the primary drivers of growth in the health and social work.
According to the ONS, the household saving ratio reduced to 6.8% in Q4 compared to 7.5% in Q3 2021. Rising customer expenditure in transport, net tourism, clothing and footwear led the increase in household spending as consumers dipped into lockdown savings.
In Q4, real household disposable income dropped by 0.1% whilst nominal households’ gross disposable income grew 1.3%, which was offset by quarterly household inflation of 1.4%.
In Q3, household disposable income adjusted for inflation declined by 0.2% compared to Q2 due to impacts from inflation on household budgets as well as a downward revision of pension contributions.
During the fourth quarter, real household disposable spending increased by 0.5%, underperforming from the initial expectations of 1.2% growth.
However, it was not all bad news, as the UK did manage to shrink its balance of payments to £7.3bn with the help of foreign investments, despite supply chain problems prevailing due to the pandemic.
Government officials monitoring the country’s fiscal condition predicted that with inflation reaching 9%, investors expect the recovery to slow down in 2022 since consumers face a decline in the standard of living.
Danni Hewson, Financial Analyst, AJ Bell said, “It might seem odd, but Omicron actually provided a substantial boost to UK economic growth in the last three months of 2021.”
“Growth was stronger than had been forecast and by the end of the year the UK economy was a hair’s breadth from where it had before the ravages of Covid.”
“But even in the dying days of 2021 inflation was already packing a punch. Household’s disposable income fell, people started to dip into savings as a way to offset those inflationary pressures, put simply people were having to pay more for what they wanted.”
“With the expectation that this year will deliver the biggest fall in living standards since the 1950’s alarm bells are clanging, and damage done to savings and pension contributions in the now will have consequences in years to come.”
“And the squeeze has only just begun, the pressures households were experiencing last year will be nothing compared to what is to come.”