The WTF economy: Why latest UK GDP figures only add to the confusion
City economists were united in confusion after official data showed a larger than expected fall in GDP.
Figures from the Office for National Statistics (ONS) showed that the UK economy shrunk 0.5 per cent in July. Yet this came after a larger than expected increase in GDP in June, when it grew by 0.5 per cent.
Nicholas Hyett, investment analyst at Wealth Club, said the UK’s economy was like the “hokey cokey”. So, what’s going on?
July’s data reflected the impact of strike days and July’s unusually wet weather, both of which significantly impacted output in the period. This suggests the fall is less severe than it looks.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the monthly contraction can be “uncontroversially attributed to one-off developments,” arguing that it does not “mark the start of a falling trend”.
However, other economists pointed out that the vast majority of sectors were in decline. This likely reflects the impact of higher interest rates in deadening economic activity.
While Martin Beck, chief economic advisor to the EY ITEM Club, noted the impact of “erratic factors”, he argued it is now “looking more touch-and-go whether output will expand in Q3”.
Others suggested that we might already be in recession.
The debates over how to interpret today’s data also come on a more fundamental level. Recently the ONS published revisions to its data, which showed that the UK’s recovery from the pandemic was much stronger than its initial estimates.
In line with its recent Blue Book changes, the ONS is due to publish revisions to its estimates for GDP in 2022 and 2023 later in September.
As a result Ellie Henderson at Investec said, the numbers should be taken with “a large pinch of salt”.
“There is the potential for (quite substantial!) revisions just around the corner, which could change the judgement on how much spare capacity there is in the economy,” she added.
But revisions are a fact of statistical life. In a blog post published this morning, national statistician at the ONS Ian Diamond said “measuring a national economy worth around £2.5trn is not a simple task”.
He pointed out that revisions to initial estimates in the UK are “some of the smallest revisions in the developed world.”
Despite the revisions and despite the one-off changes, recent data points to one conclusion: the UK economy is grinding to a halt.