UK economic recovery loses some momentum in Q3 as higher prices and shortages slow growth

High global growth as countries bounce back from the economic effects of the pandemic weakened in Q3, but confidence and orders remain at high levels in the UK, according to the latest Global Economic Survey from ACCA (the Association of Chartered Certified Accountants) and IMA (Institute of Management Accountants).

Confidence fell back 23 points in the UK during Q3, but remains at a relatively high level, having dipped from a record score last quarter.

Global confidence fell by nine points in Q3, with falls in Western Europe (-24) and North America (-41) pulling down the score. However, both regions are also at relatively high levels of confidence, as is the case globally. In fact, confidence jumped in Asia Pacific (+11) and South Asia (+20), after falls in the previous survey.

The Middle East was the only region to record improved confidence for the six months of Q2 and Q3.

As regards to orders, which is a useful benchmark to measure real economic activity – the score fell slightly by two points in the UK. However, orders are still well above the pre-pandemic levels.

Globally, there was a split between advanced regions and emerging markets. There were falls in orders affecting North America and Western Europe contrasted with modest improvements in emerging markets.

However, the wider economic prospects in developed economies remain brighter than in emerging markets, where low vaccination rates continue to drag on economic recovery. And, apart from Africa, all major regions are now reporting order levels above their pre-pandemic level, indicating a continued global recovery.

The UK also saw positive news in terms of employment and investment, which both increased, especially employment, which rose by 16 points this quarter.

Another positive indication from the global survey are the two ‘fear indices’, which measure concern that customers and suppliers may go out of business. Both declined again in Q3 and are now back in line with their long-run average levels after spiking around Q2 2020.

Concern about operating costs is now at its highest level since the start of 2019 and increased five points in Q3. This is driven by higher transport and commodities costs, leading to higher inflation and weaker growth now.

Lloyd Powell, Head of ACCA Wales, said: “The UK labour market has proved resilient during the pandemic, helped by the furlough scheme which has now finished. The UK economy is growing more slowly in the latter period of 2021 after exceptionally strong growth in Q2. But it is likely that the level of output will regain its pre-pandemic level by the end of this year.

“A moderation in growth was to be expected, as the pace set earlier this year could not be maintained indefinitely.

“Although confidence and orders have lost momentum in regions including North America and Western Europe, we are still seeing an encouraging picture of global economic recovery overall.

“Concerns about extra operating costs for businesses should prove temporary as the price mechanism operates to encourage increased supply and reduced demand. But for now, the effects are to moderate global growth from a rapid to a steady pace.”

“Although economic growth has slowed in many regions and the prevalence of the Delta variant of COVID-19 particularly in developed countries expectedly drove down global confidence, underlying demand remains strong,” said Loreal Jiles, vice president of research and thought leadership at IMA.

“As COVID-19 vaccinations continue to increase and we remedy supply shortages and increased prices in advanced economies, there is an opportunity for overall confidence to increase significantly.”

The full GECS report can be found here:

https://www.accaglobal.com/gb/en/professional-insights/global-economics/gecs_q3_2021.html

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