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Growth to lose momentum in UK and Europe

Author: ICAEW Insights

Published: 12 Apr 2022

Recent figures from ONS and OECD point towards a gradual deceleration in growth across Europe, with GDP in the UK starting to slow just as it topped its pre-pandemic level.

In the UK GDP grew by 0.1% in February 2022, following 0.8% growth in January 2022, according to recent statistics from the Office for National Statistics (ONS). Monthly real GDP growth is now 1.5% above the pre-pandemic level in February 2020. 

The ONS report says that the main contributor to the recovery from February 2020 to February 2022 was human health and social work activities followed by professional, scientific and technical activities and information and communication. The largest drivers of negative growth between February 2020 and February 2022 were real estate activities and other service activities.

Commenting on these latest GDP figures, Debapratim De, a senior economist at Deloitte, said: “Growth came in below expectations in February as supply disruptions stunted manufacturing activity. With the full impact of the war in Ukraine likely to have been felt only in March, this weakness is expected to continue, making for a muted end to the first quarter.

“UK growth seems to be losing momentum just as the most significant inflationary pressures take hold. This, along with sharply lower consumer confidence and spending power, points to potentially slower interest rate rises than expected.”

Leading indicators point to growth also slowing down in Europe

The OECD Composite leading indicators (CLIs), designed to anticipate turning points in economic activity relative to trend, also point to growth losing momentum across Europe, but a stable growth in other major OECD economies.

In the United Kingdom and in the Euro area as a whole, including Germany, France and Italy, the CLIs anticipate growth losing momentum, driven by a contraction in consumer confidence indicators and the surge of inflation. Among major OECD economies outside Europe, the CLIs remain above trend and continue to signal stable growth in the United States as well as in Japan and Canada.

Among major emerging-market economies, the CLIs for China (industrial sector) and India continue to point to stable growth, whereas in Brazil the CLI continues to anticipate slowing growth.

The CLIs aim to anticipate fluctuations in economic activity over the next six to nine months based on a range of forward-looking indicators such as order books, confidence indicators, building permits, long-term interest rates, new car registrations, and more. 

Most indicators are available up to March 2022. It is worth noting that ongoing uncertainties related to COVID-19 and the war in Ukraine are resulting in higher than usual fluctuations in the CLI and its components. 

As such, the CLIs should continue to be interpreted with care and their magnitude should be regarded as an indication of the strength of the signal rather than as a measure of growth in economic activity.

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