UK GDP continues to flat line but prospects start to improve

This morning has brought news for the UK which Homer Simpson would describe as M’eh.

Monthly real gross domestic product (GDP) is estimated to have shown no growth in the three months to October 2023, compared with the three months to July 2023.

So we have continued the same pattern as in the third quarter of no economic growth. In a sense that is stability but not in any sort of good way and is a decline on the opening two quarters of the year where we saw GDP growth of 0.3% and then 0.2%.

The monthly detail provides a bit of a problem though.

Monthly GDP is estimated to have fallen by 0.3% in October 2023, following growth of 0.2% in September 2023.

I will come to the detail of the reported fall in a moment but the context here as I have pointed out many times is of an erratic series.

That is the monthly growth rates for the past year and the worst part of the erratic nature of this is shown by GDP growth of 0.7% in June followed by a 0.6% decline in July. Does anybody believe that? As you have to think we were fantastic in June followed by awful in July which makes little sense. The pattern suggests that some parts of the economy do not work to s monthly pattern. One example of this we have looked at in the past is the pharmaceutical sector which ebbs and flows each month in the monthly production numbers.

What happened in October?

As so often the main player was the service sector, but the others fell as well.

Output in the services sector fell by 0.2% in October 2023 and was the largest contributing sector to the contraction in monthly GDP. Production and construction output both fell on the month, by 0.8% and 0.5%, respectively.

A driver of the services fall was this.

The main driver to the 0.3% fall in the services output was information and communication, which fell by 1.7% in October 2023, following growth of 0.4% in September.

It seems to have unsettled the Office for National Statistics into putting 0.3% by mistake rather than 0.2%. There is a further breakdown below.

Five of the six industries in the information and communication subsection fell in October 2023, with the largest contributions coming from computer programming, consultancy and related activities, as well as motion picture, video and TV production.

Professional, scientific and technical activities fell by 0.7%, with falls in five out of the eight industries. Legal activities was the largest contributing industry, falling by 2.8% in October 2023.

There has been filming in Battersea Park so we are doing a bit for the TV and film section. The one part which grew is below.

These falls were partially offset by growth in administrative and support service activities, which grew by 0.7% in October 2023. This was driven by growth of 1.4% in rental and leasing activities.

There was some reinforcement of the reduction in strikes in the labour market report yesterday from this.

Human health and social activities work grew by 0.4% in October 2023, driven by a growth of 0.5% in human health activities. There were three days of coordinated industrial action by junior and senior doctors in October 2023, where NHS England news reported that 118,026 appointments were rescheduled. This is less than the four days of strikes in September 2023.

Reinforcing the downwards trend was a sector which has been having a rough time of it for quite a while now.

Output in consumer-facing services fell by 0.1% in October 2023, and remains 5.0% below pre-coronavirus pandemic levels (February 2020), while all other services were 7.2% above . The largest negative contributions in October 2023 came from other personal service activities, which fell by 2.3%.

I am sure that some of what is essentially the same activity has simply moved category but even so one cannot avoid the fact that this is a depression for this sector.

Production

As you can see below the news in October continued a pretty grim trend.

On the month, production output is estimated to have fallen by 0.8% in October 2023, driven by widespread declines in manufacturing output, following no growth in September and a fall of 0.5% in August.

A deeper picture is provided by this.

Production output is estimated to have fallen by 0.7% in the three months to October 2023 compared with the three months to July, driven by a fall of 0.9% in manufacturing. Electricity, gas, steam and air conditioning supply fell by 0.5%, mining and quarrying grew by 1.2% and water supply, sewerage, waste management and remediation activities grew by 0.1% over the same period.

Firstly let me welcome the better mining and quarrying figures because hopefully much of that is oil and gas. That issue is on my mind because the Euro area has this morning shown how high energy prices can cause deindustrialisation as production was 6.6% lower in October than a year before. We have our own problems  with recent figures but have avoided the annual plunge so far as our production has not done much rising 0.3% over the past year but we have avoided that. But maybe it is beginning to hit us as well.

Manufacturing fell by 1.1% in October 2023 with widespread falls in 10 of the 13 subsectors. The largest negative contributions in October came from a 2.5% fall in manufacturing of computer, electronic and optical products, and a 3.0% fall in manufacture of machinery and equipment not elsewhere classified (N.E.C.) in the month

Construction

This is possibly the worst series to try to measure monthly if you look at the large revisions that are experienced. But for what it is worth here are the numbers.

In October 2023, monthly construction output is estimated to have decreased 0.5% in volume terms. This follows a 0.4% increase in September 2023.

Comment

The reality is that we have seen a period of no economic growth at all. That is having an impact in that financial markets are responding to this as we have seen the UK ten-year yield fall below 4% this morning. From the peaks of October we have seen a fall of the order of three-quarters of a point. The overall position provides three problems for the Bank of England when it votes on interest-rates later. The simplest is that “Higher for Longer” has not lasted very long in bond markets. Next up is that whilst we have not done that well over the past year we have had some growth which is very different to the 2% decline they forecast.

The third issue is positive for economic growth via lower prices or disinflation. This comes from natural gas prices. There is a continuous futures contract which pealed at 146 pence per therm in October but is now 90 pence representing quite a fall. The price in terms of precise numbers is volatile but there has been a welcome shift lower. Sadly it will take a while for domestic consumers to see the benefit because of the price cap, but the outlook now looks quite a bit better. I would expect this to be much of the reasoning behind this.

November data highlighted a modest rebound in business
activity across the UK service sector, which ended a three month period of decline. ( S&P Global PMI )