UK GDP shows growth and then stagflation

This morning has brought us up to date on the state of play in the UK economy and we can start with some good news.

UK gross domestic product (GDP) is estimated to have increased by 0.8% in Quarter 1 (Jan to Mar) 2022, and by 8.7% compared with Quarter 1 2021.

That continues  with this.

The level of quarterly GDP in Quarter 1 2022 is now 0.7% above its pre-coronavirus level (Quarter 4 (Oct to Dec) 2019).

In terms of the quarterly growth that compares with 0.2% in the Euro area and -0.35% in the United States.We do not have the figures for Japan yet but it could easily be another contraction. So in international terms we did well.

The breakdown was different to what one might expect with this area in the van.

Construction output rose by 3.8% in Quarter 1 2022 and is now 1.9% above pre-coronavirus pandemic levels.

Increases in both new work and repair and maintenance (2.8% and 5.5% respectively) contributed to the quarterly growth. At the type of work level, seven of the nine sectors saw an increase with only infrastructure and public other new work seeing falls.

Next up was perhaps a surprising area in the circumstances.

Production output rose by 1.2% in Quarter 1 2022……..The rise in production output was primarily driven by a rise in manufacturing output (1.3%). 

Okay so what drove that?

There were large increases in the manufacture of basic metals and metal production (8.4%); other manufacturing and repair (5.3%); and manufacture of food products, beverages and tobacco (2.6%).

It certainly wasn’t driven by this.

However, there was a 3.3% fall in the manufacture of transport equipment reflecting supply chain shortages, which led to temporary closures of factories in January and February 2022.

Plus the ebb and of the pharmaceutical sector was set to ebb this time.

This was partly offset by a 12.9% fall in the manufacture of basic pharmaceutical products and pharmaceutical preparations, following strong growth in Quarter 4 2021 (9.4%).

This means that our usual leader of the pack was in fact bringing up the rear.

Services output rose by 0.4% in Quarter 1 (Jan to Mar) 2022 and by 9.9% compared with Quarter 1 2021. It is now 1.4% above pre-coronavirus pandemic levels.

The services areas which did well are below.

There was an increase in output from information and communication (3.6%), driven by rises in computer programming and information service activities (Figure 3). The quarterly rise in accommodation and food services (5.1%) follows the adverse impact of the Omicron variant towards the end of Quarter 4 (Oct to Dec) 2021.

Also whilst this is good news below, if you think about it the news implies more bad news for the high street.

There was an increase in transport and storage (3.6%) because of positive contributions in warehousing and support activities (4.3%), land transport services (3.8%), postal activities (7.0%) and air transport (14.5%).

The hospitality industry had some good news as well.

Administrative and support service activities rose by 2.8% in Quarter 1 2022. This reflected a rise in travel agencies, tour operator and other related activities, driven by the effect of easing coronavirus (COVID-19) restrictions on the tourism industry (which also had a positive impact on air transport).

On the other side of the coin I doubt many of you will be surprised to read this.

Within services, however, there was a 2.3% fall in all three sub-industries within the wholesale and retail trade, and repair of motor vehicles and motorcycles sub-sector.

There was also perhaps a hint of supply-chain issues.

This was partially offset by a 15.9% fall in water transport activities

Inflation

However we do hit a problem here which is shown by the numbers.

The implied GDP deflator rose by 1.8% in Quarter 1 2022 (compared with Quarter 4 2021), mainly driven by a 1.3% increase in the implied price of household consumption.

That is reasonable for the quarter but the last year looks competely unrealistic to me.

Compared with the same quarter a year ago, the implied GDP deflator rose by 2.1%.

Health and Education

As regular readers may already have figured out the problem is found here.

There was also a 5.2% decline in the implied price of government consumption.

They have at least sort of come around to my line of thinking.

However, as there is no market price for this expenditure, we recommend caution in interpreting the movements in this implied price, particularly over the course of the coronavirus pandemic.

This is a subject I spoke about last week at the Covid enquiry at the Royal Statistical Society. The around 32% fall in the government consumption deflator in the second quarter of 2020 ( so as Covid hit) not only blew up the deflator it pushed UK GDP lower as well. Accordingly I am sorry to have to say this but the bit below is not true.

The implied GDP deflator represents the broadest measure of inflation in the domestic economy, reflecting changes in the price of all goods and services that comprise GDP. It is important to note that the GDP deflator covers the whole of the economy, not just consumer spending.

Returning to the issue of health and education the pandemic effect is leaving the numbers.

Human health and social work activities fell by 1.8% in Quarter 1 2022, reflecting a large fall in COVID-19 detection activities, such as NHS Test and Trace, COVID-19 vaccination programme and lateral flow orders.

Hopefully it is not a case of Hotel California.

“Relax”, said the night man
“We are programmed to receive”
You can check out any time you like, but you can never leave.

Anyway we can leave the quarterly figures having noted that growth in the economy ex health expenditure on the pandemic did better than 0.8%.

Monthly GDP

Here the story changes somewhat as it starts well with growth of 0.7% in January but then behaves like a limp lettuce.

Gross domestic product (GDP) fell by 0.1% in March 2022, after no growth in February 2022 (revised down from 0.1% growth).

We see how services were weaker than usual as they ended the quarter badly.

Services fell by 0.2% in March 2022 after no growth in February 2022 (revised down from growth of 0.2%).

We see an unsurprising driver of this.

Wholesale and retail trade fell by 2.8% in March 2022 and was the main negative contributor to March’s fall in services. The driver of this fall was wholesale and retail trade and repair of motor vehicles and motorcycles, which fell by 15.1%.

On the other side of the coin as pandemic based healthcare declined more normal services returned.

The largest positive contributor to services in March 2022 was human health and social work activities (up 1.5%). Human health activities (up 2.1%) was the main driver of this growth, largely reflecting a rise in GP appointments, and accident and emergency care.

There have been a lot of complaints about GP services in the UK so hopefully this is the beginning of an improvement. Also if we take out the impact of the pandemic on health we did see some growth in March.

The NHS Test and Trace and COVID-19 vaccination programme reduced GDP growth by 0.2 percentage points in March 2022. This was driven by further falls in both NHS Test and Trace (down 26%) and the Vaccination programmes (down 22%),

Comment

The main theme here is that our theme of stagflation is already in play. The monthly numbers are unreliable but 0.7%,0% and then -0.1% sets a clear trend. I have pointed out in the past that there will be an issue with replacing the impact of Vaccines and Test &Trace  on the GDP numbers, but in fact that is going pretty well.The problem is the impact of inflation on the cost of living and hence GDP.

Output in consumer-facing services fell by 1.8% in March 2022, following a 0.5% (revised down from 0.7%) growth in February 2022.

As to inflation measurement I am afraid the GDP Deflator is simply broken.

Maybe we also got a hint of a turn in house prices.

The main driver to consumer-facing services remaining below pre-coronavirus levels was buying and selling, renting and operating of own or leased real estate (excluding imputed rent), contributing negative 3.1 percentage points, after dropping from all-time high levels in February 2020

In which case this will turn out to be simply empty rhetoric.

The Bank of England will have to raise interest rates further to control surging prices, warns Deputy Governor Dave Ramsden ( Bloomberg )

 

 

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27 thoughts on “UK GDP shows growth and then stagflation

  1. I wonder if we may continue to see economic growth in value terms due to price increases combined with a volume decline for the same reason!

    • Given the way HGM Gerrymanders the figures I suspect we’ll all be on stale bread and water living in carboard boxes and yet the GDP figure will show we’re immensely rich (!)

      ( houses will be worth trillions and I’ll still not be able to buy popcorn )

      Forbin

      • Not I.
        The community owns the caravan park, it is run by volunteers with a committee & that raises a lot of money for the community.
        We also have numerous & varied farmers who, along with small-scale, grow-your-owners like I am, will contribute what we can to make sure no Port William child goes to bed hungry.

        • You live near Port William! I remember that area from the 60’s when I visited with my parents. Very nice area indeed. Our usual holiday was a couple of weeks in Langholm with trips to the coast however we did stay at a campsite near Newton Stewart which I think is not too far from you. It felt like a long way from Tyneside – which it was in those days! You are far from the maddening crowd.

          • I live IN Port William. A few yards from the sea & fields with horses sheep & cattle to the rear.
            The people here are wonderful; so community centred.
            I was lucky enough that when I lived in Cheadle my neighbours were all friends; friends that my wife & I are still very much in touch with, & finding that again here has been sheer joy.
            I can walk on a beautiful sandy beach, alone apart from my dog, on a sunny August day.
            I count myself very lucky.

          • If I may ask, Pavlaki, your name, Young or Little Paul in English suggests from the suffix “-akis” (nominative “aki” that your family hails from Crete or Aegean Islands’
            I especially loved my holidays in Crete, especially those near Chania on the outskirts of Vamos, close to Kalyves.& Almerida
            Views of the Lefki Ora (White Mountains) snow-capped well into summer. on one side, and an elevated sea-view from our villa in Xirosterni,
            The irony of learning a little Greek with the lisped “X” sh, when as a Scot the “ch” as in loch is my natural pronunciation, as a thank you to the wonderful people of the area.
            I loved the drive past Kalamaki & Kissamos on the NW. Beautiful country once you get past Plantanias.
            That wouldn’t be your neck of the woods, would it?

  2. How many millionaires will go hungry & cold this winter?
    How many will try to downsize in order to free up cash just to live?
    House prices are in for a big, BIG shock.
    Planted 80 of my 240 onions yesterday (Seedlings grown, from seed.) My garlic is all approx. 2ft tall & seems to be doing nicely.
    Please, if you have some spare ground, grow some veg in it to boost your food availability.
    Often, elderly single people (widowed) or couples, have gardens they find too much.
    Here, what often happens is that struggling younger people grow food in these gardens & share it with the owners, a good boost for both.
    Some elderly folk here even SELL their garden, or part of it, to raise cash.
    There are still many, many crops which you have time to start.
    If you need advice to get going, this is a particularly good site (with which I have nothing to do)
    https://www.gardenfocused.co.uk/

    • Hi buz, I grew a few potatoes was I was a ld and my father used to grow a few, so easy to grow. You can also grow them in large planters. I am not certain how many times you can grow them in a year not being a gardener. My father used to grow his tomatoes as well and they were far tastier than you can buy in the shops, mots the golf ball tomatoes have no taste. Some vine tomatoes taste better but generally not as good as home grown.

      I think the problem with home grown is storing them maybe you have a better idea how to do that. Some areas in the country
      have plenty of garden space but cannot be bothered growing your own veg.

      What about pigs and hens are you into those as well?

      One of the problems with the youngsters and even middle aged is they are so uded to take-aways and quick ready meals which they are paying a fortune for and if they cooked their own food from scratch it would be far cheaper

      • No livestock for me yet.
        I know far too little about keeping them.
        Not quite so bothered about mistreating plants

  3. I noticed business investment -05% this is not what Borris nether the Chacellor wants to hear when he said “jobs jobs jobs” !

    Strange fall in motor and cycle repairs:

    “Wholesale and retail trade fell by 2.8% in March 2022 and was the main negative contributor to March’s fall in services. The driver of this fall was wholesale and retail trade and repair of motor vehicles and motorcycles, which fell by 15.1%.”

    Maybe some people not driving as much and working from home and the GOV hints they will scrap 1 year MOT’s and replace to two years will mean less work for garages !

    Listening to GB “on the money” after lunch I heard one of the guests mention to avoid a recession the UK may need to introduce negative interest rates, this is at odds with Ramsden’s coments above. The BOE may find themselves behind the trend again and if they put interest rates up having to have steeper falls later on imo.

    However prices are still going up and retailers say people are putting off big ticket prices and looking for bargains and I think the UK is already in recession, which will only get worse, so increasing interest rates will just exacerbate the problem and hurt business when trade is set to fall off a cliff, that is why business investment is down.

    Professor Danny Blanchflower economist & fisherman
    @D_Blanchflower
    ·
    1h
    “UK recession seems certain –the question is how deep will it be The chancellor is shy of increasing welfare payments to the bottom third of people who are the worst affected. It’s an ideological blind spot that by the end of the year could cost him his job”

    BBC:

    https://www.bbc.co.uk/news/business-61419388

    However some people have some money to spend and it is going on Holidays TUI has no last minute bookings so no cheap holidays:

    https://www.bbc.co.uk/news/business-61405632?at_medium=RSS&at_campaign=KARANGA

    • Hi Peter

      Perhaps the garages are being affected by the supply chain crisis and cannot get he parts required to fix the cars and motorbikes. As to avoiding a recession with negative interest-rates, they have not done the job for the Euro area.

    • People are spending the cash they accumulated over lockdown but when its gone its gone and would suggest there will be a big drop off in discretionary spending later in the year that will knock back GDP.

  4. Cryptocurrencies were supposed to be a safe haven against zero interest rates, some would have said but now we are facing both stagnation and a recession the balloon seems to be bursting:

    https://www.dailymail.co.uk/news/article-10808609/Ethereum-joins-crypto-plunge-Second-largest-digital-currency-loses-20-value-24-hours.html

    The big question many will be asking are property prices the next to plunge particullarly with interest rates going up?

    If they do all those people who have seen their houses boom in value and have taken equity out of their homes will be quite concerned.

  5. This recession is not caused by war in Ukraine, but the globalist elite are using it to deepen the recession & cause far more misery, with Putin as the bogeyman cause.
    A lot fell into place when Sweden & Finland were persuaded to seek to join NATO.
    Russia has no beef with either Sweden or Finland, & has no Russian minority in either country to ethnically cleanse.
    Russia, Sweden & Finland have lived side-by-side for many decades without issue, but both have globalist elite govts. (and OH HOW SWEDEN’s has messed up.
    This is about Putin’s rejection of globalism, make no mistake; that is why he is the enemy, not President Xi (who has done far worse, but is the WEF’s star turn) not barbaric Middle Eastern regimes, who execute 84 people in a day, some for the most trivial of offences, & which are enjoined in REAL genocide in Yemen. They are globalist, you see.

    • Hello Buzz

      I disagree in that the recession is a product of lockdowns and mis or no investment caused by the mistaken belief that cheap energy is not required for the modern economy. My view for decades has been that Western deomcracy rests on cheap energy and the drive to more expensive so called “green” energy will result in economic collapse.

      Unless we change course that is.

      Fossil fuels are finite and all the alt energy sources are net sinks ( wind solar) but useful in niche cases.

      Add to the absolute childishness of western governments and the world wide disruption in trade and we have a really “interesting” future ahead.

      So have some popcorn and pull up a seat

      Forbin

      PS: everyone is allowed to disagree with me 😉

      • UK growth been paltry the last decade, before Covid we were struggling the covid and inflation around the globe just crippled this country and we wont get out of it in a short time. We need productivity growth in the UK and we aren’t doing well on that front:

        Andrew Sentance
        @asentance
        This century has seen dismal productivity growth across the industrialised world. The US has achieved half-decent increases (IMF estimates 1.3% pa 2000-23). Most other G7 economies have managed only around 0.5-0.7% pa over more than 2 decade and Italy’s productivity has declined.

          • Well that takes the biscuit , doesnt it ?

            Canute , a Danish king of England, is often portrayed as the king who though he could turn the tide back .

            This is of course codswallop.

            What actually happened is that his court advisors were telling him he was so powerful and god like that he could turned the tide back
            He said ” no I can’t lets place my throne on the beach and you’ll see that I can’t ”

            thus proving the advisors wrong

            now is Andrew Canute or an advisor? ?

            Forbin

          • Forbin, how do you know that your version of the Canute story isn’t myth, when Marie-Antoinette was supposed to be so out of touch with reality 7 centuries later?

      • I don’t disagree that you are right about the CAUSE of recession, Forbin, that’s the point of the first sentence in that post.

  6. One of the reasons for our poor productivity growth is the time we spend with more & more regulations.
    There was a good example in the papers today, A women wised to organised a local street party for the Jubilee.
    She received a 23 page document for her local council for approval of her plans. ~They included such gems as her “Counter Terrorism Plans”, her “Security plan”, her Severe weather management plan” and her Covid 19 risk assessment plan”
    Today I saw a much smaller, but similar stupidity, whilst I was walking in the countryside. I was about a couple of miles from the nearest small town and using a public foot path, I came across
    a small footbridge to cross the small river, where large yellow signs were displayed warning of the dangers of jumping into the river!

    • Hi nickvii

      There are all sorts of risk assessments now and I fear for what is required at athletics meetings. Some things are sensible such as the St,Johns Ambulance being present for big meetings and races. But people have their own foibles as I passed someone in wellington boots in Battersea Park earlier after what has been rather a dry ( and in the park dusty) spring.

      But remember someone will be adding the cost off these rules and regs to GDP.

    • I disagree.
      Regulation may slow us down, but shouldn’t make us uncompetitive: Germany has much higher productivity than us, but has the EU to contend with.
      Our problems are
      1) Lack of investment.
      2) Poor industrial relations.
      3) The nauseating levels of self-reward from remuneration “boards” whilst others struggle, leads to poor workforce morale.
      4) Out-dated work practices.

      That list is far from exhaustive, but it’s a start.

      • Pretty succinct but until those from item 3 show some solidarity by taking a pay cut 1,2 & 4 won’t be changed.

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