The UK economy grew at a much slower rate than anticipated in October at just 0.1% according to data from the Office of National Statistics (ONS), below the 0.4% consensus forecast and leaving the UK economy 0.5% smaller than its pre-pandemic levels
Comparatively, GDP increased 0.6% in September and by 1.3% in the third quarter (July to September).
With further restrictions put in place to limit the spread of Omicron, an already struggling hospitality and recreation sector is likely to be hit by even less economic activity.
The health services sector rose up 2.6% in October – the main driver of growth for the month – as patients returned to face-to-face GP appointments. Overall, services output rose 0.4%, while consumer-facing services grew 0.3%.
However, industrial and construction output fell short of expectations, both posting unexpected drops on the month of 0.6% and 1.8% respectively.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: “The worst is yet to come as the Plan B of masks, covid passes and the work from home order is likely to funnel more spending away from services to goods, doing little to ease inflation.
“After last year’s cancelled Christmas, another watered down celebration will be hard to stomach for the hospitality industry.”
Today’s numbers could also impact the Bank of England’s decision on interest rates, with the Monetary Policy Committee (MPC), scheduled to meet next Thursday.
David Page, head of macro research at AXA Investment Managers, said: “The short-term uncertainty surrounding Omicron and the reimposition of modest restrictions associated with the government’s Plan B certainly provide the MPC with a reason to leave a decision on tightening until the February meeting.”
Streeter added: “A rate rise in February is more likely to be on the table, as the inflation kettle is set to be whistling loudly by then. That is unless restrictions are ramped up dramatically, pushing the economy into an even tighter recovery position.’’
Investing in this environment could be difficult, but Paul Craig, portfolio manager at Quilter Investors suggested quality businesses with strong competitive franchises should thrive.
“Investors may therefore want to pay closer attention to individual stocks, rather than which factor will drive returns as the recovery continues to play out,” he said.