As we arrive in Christmas week we find that the data on the UK economy is sending a rather unseasonal message. Here is the official release from earlier.
UK real gross domestic product (GDP) is estimated to have shown no growth in Quarter 3 (July to Sept) 2024, revised down from the first estimate increase of 0.1%.
In itself a 0.1% downwards revision is not especially statistically significant, but it comes with other troubling news and in fact we quickly see another part of that.
The quarterly path of real GDP at an aggregate level is unchanged from Quarter 1 (Jan to Mar) 2023 to Quarter 1 2024, however, there have been downward revisions of 0.1 percentage points in Quarter 2 (Apr to June) and Quarter 3 2024.
So the second quarter has been revised down to 0.4% which seems like oodles of growth at the moment! The heady days of summer when the first quarter of 2024 was revised up from 0.6% to 0.7% seems like a long time ago now. Also the pattern of the year is starting to look somewhat different as what appeared to be a strong first half to the year now looks to have been already slowing in the second quarter albeit that these days 0.4% for a quarter is still pretty good.
As to an overall explanation the official release is somewhat opaque.
This release includes the processing of new and revised source data, including new Value Added Tax (VAT) data for Quarter 2 2024, replacement of forecasts with actual survey or external source data, new seasonal adjustment factors, and a comprehensive review of GDP balancing.
There is a clear hint that consumption was lower via the mention of the VAT figures which is rather ominous as that VAT weakness continued in the public finances data for November that I looked at on Friday. Also it looks as though there have been weaker trends in the expenditure and income versions of GDP. For newer readers there are in fact 3 versions of GDP with the UK using the output one as the main player but then over time bringing news from the others in. For example trade figures particularly feature in the expenditure version and are subject to large revision.
Inflation
There was something else in this morning’s release that is of concern.
Nominal GDP is estimated to have increased by 1.2% in Quarter 3 2024 (previously a 0.8% increase). Compared with the same quarter a year ago, nominal GDP is estimated to have increased by 4.0%.
That is quite a large upwards revision for nominal GDP and as we now that real GDP growth was 0% then we see that inflation was 1.2% for the quarter on this measure. The official explanation is below.
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 domestic economy, not just consumer spending, and also reflects the change in the relative price of exports to imports.
A little care is needed because what used to be a reliable measure got damaged in the Covid pandemic as the Health and Education deflators were inflated substantially as the Office for National Statistics got into rather a pickle. But now things are quieter in that area so whisper it quietly but the third quarter looks rather stagflationary now.
Back to the third quarter
Here we see that our largest and usually strongest sector flat-lined.
There was no growth in the services sector in the latest quarter, while a 0.7% increase in construction was offset by a 0.4% fall in production. Across Quarter 3, early estimates show that 9 out of 20 of the subsectors grew, revised down from 11 in the first estimate.
If you are looking for what pulled services weaker then it was an area usually a UK strength.
The largest negative contributor to growth in Quarter 3 2024 was financial and insurance activities, which fell by 0.6%.
Was money already leaving ahead of the plans the new UK government has for what has become called non-doms? Also in the light of the VAT figures being weaker this is a bit of a surprise.
Within this subsector, growth in the latest quarter was driven by retail trade, except of motor vehicles and motorcycles, which increased by 1.4%.
Production
I am afraid the numbers here are rather grim as we see the consequences of out political class choosing to have an expensive energy policy that looks set to create deindustrialisation.
The production sector is estimated to have fallen by 0.4% in the latest quarter, revised down from the first estimate fall of 0.2%. Compared with the same quarter a year ago, production output is estimated to have fallen by 2.3%.
There has previously been a little growth recorded in manufacturing but that has been revised away.
Manufacturing output fell by 0.1% in Quarter 3 2024 (previously a 0.2% increase), with falls in 4 out of 13 of the subsectors. Within manufacturing, the largest negative contributions came from the manufacture of machinery and equipment, and transport equipment.
Indeed we see to have downwards revisions aplenty.
Production output growth has been revised down by 0.2 percentage points in both Quarter 2 2024 and Quarter 3 2024, mainly driven by manufacturing, and the mining and quarrying subsectors.
Although one piece of bad news may have a little hope in it.
The fall in production was largely driven by a 2.0% decline in electricity, gas, steam and air conditioning supply and a 0.1% fall in water supply; sewerage, waste management and remediation activities.
There was less pressure on the energy sector although in terms of electricity my daily numbers show we pretty much continuously import these days. So some of the domestic supply is replaced by imports which is not positive.
Construction
This is the one clear positive area and even it was revised lower.
Construction output is estimated to have grown by 0.7% in Quarter 3 2024 (previously a 0.8% increase), following three consecutive quarterly falls.
Also it has fallen over the past year.
The level of construction output in Quarter 3 2024 was 0.2% lower than the same quarter a year ago.
It is the most unreliable of the series with frequent substantial revisions, but here is the detail.
New work increased by 1.6% in the latest quarter, whereas repair and maintenance decreased by 0.5%. Within new work, the largest contribution to the increase came from infrastructure new work, which grew by 2.1%, while in repair and maintenance the largest negative contribution came from private housing repair and maintenance, which fell by 6.0%.
Looking Ahead
The end of the year was described by the Bank of England like this on Thursday.
Bank staff expect GDP growth to have been weaker at the end of the year than projected in the November Monetary Policy Report…….Bank staff now expected zero GDP growth in 2024 Q4, weaker than the 0.3% that had been incorporated in the November Report.
Actually in November they were thinking that the third quarter saw GDP growth of 0.2% so overall we have seen expectations for the last half of the year fall by 0.5%.
Then what used to be called the Confederation of British Industry released this.
Private sector firms expect activity to fall in the three months to March (weighted balance of -24%), according to the CBI’s latest Growth Indicator. Expectations are now at their weakest in over two years.
This pessimism was shared across all sub-sectors. Business volumes in the services sector are anticipated to decline (-18%), driven by predicted falls in both business and professional services (-13%) and consumer services (-37%). Distribution sales are expected to fall steeply (-35%), and manufacturers also anticipate output to fall (-31%), with expectations at their weakest since May 2020.
As the Black-Eyed Peas would put it.
I got that boom, boom, boomThat future boom, boom, boomLet me get it now
They were not optimistic about this quarter either.
The disappointing outlook comes as private sector activity fell again in the three months to December, at a faster pace than in the three months to November (-21% from -13% in November).
Comment
These look like being hard times for the UK as a choice between recession and stagflation is not exactly appetising. In the worst scenario we get both. For the new government that you may recall had economic growth as its priority they have a problem. The third quarter was something in many ways out of their control but what they did do was negative.
The conclusion has to be that the govt messaging over the summer was entirely self defeating to the mission of economic growth, and those words came with a cost in a way they didn’t in opposition. Very, very hard to recapture the goodwill they had with business in early July. ( Simon French)
Looking ahead we see that on their watch they raised employment taxes and are now seeing the consequences. Plus there is this.
Exclusive: A coalition of major retailers including Asda, M&S, Primark and Tesco is to mount a new year campaign against proposed business rates reforms, warning they will pose a risk to jobs and investment in some of the country’s most deprived areas. ( @MarkKleinmanSky)
Oh and they are adding to inflation as well.
A new “grocery tax” designed to achieve the Government’s net zero targets will push up household shopping bills by up to £1.4 billion a year, The Telegraph can reveal.
Ministers have been accused of “quietly” passing legislation that will see as much as £56 added to household costs annually, according to the Government’s calculations. ( Daily Telegraph)