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October’s GDP rise a false dawn for UK economy

Author: ICAEW Insights

Published: 12 Dec 2022

Latest official estimate confirms that the UK GDP grew in October as the economy bounced back from September when an extra bank holiday for the Queen’s funeral suppressed growth.

The monthly GDP figures released on Monday 12 December 2022 by the Office for National Statistics (ONS) reported that UK gross domestic product (GDP) is estimated to have increased by 0.5% in October 2022, after contracting by 0.6% in September. Monthly GDP is now estimated to be 0.4% higher than its pre-coronavirus levels (February 2020). The three-month-on-three-month growth measure (a better measure of the underlying trend) remains on a recessionary path, with GDP declining by 0.3% in the three months to October compared with the previous three-month period, the biggest fall since March 2021.

Services grew by 0.6% in October, following a fall of 0.8% in September. The main driver of services growth in October was wholesale and retail trade; repair of motor vehicles and motorcycles, which grew by 1.9% in the month following a fall of 2.0% in September. All three industries within this sub-sector saw growth. 

The second-largest contribution within services came from human health and social work activities, which grew by 1.3% in October 2022 following growth of 0.9% in September 2022. This was driven by a 1.8% rise in human health activities where there was a rise in coronavirus testing and vaccinations because of the autumn booster campaign. Overall, NHS Test and Trace and the coronavirus vaccination programme contributed an estimated 0.1 percentage points to monthly GDP growth.

Production output remained broadly flat in October, after growth of 0.2% in September, with negative growth in three of the four sub-sectors. Manufacturing was the only sub-sector to grow, rising by 0.7% in the month. The main drivers were the manufacture of basic pharmaceutical products and pharmaceutical preparations (8.4%) and manufacture of transport equipment (2.3%). 

The construction sector is currently the bright spot for the UK economy with output rising by 0.8% in October. This is the fourth consecutive monthly growth and is currently the highest level of construction output (£15.2 billion) since records began in January 2010. The increase was driven by rises in new work (0.5%) and repair and maintenance (1.3%) on the month. At the sector level, the main contributors to the increase were private new housing, and non-housing repair and maintenance, which increased by 2.9% and 1.7% respectively.

Commenting on the latest ONS GDP figures, Suren Thiru, Economics Director at ICAEW, said: “October’s rebound is a false dawn for the economy as it mostly reflects the favourable comparison with September when activity was suppressed by the Bank Holiday for the Queen’s funeral. The positive start to the fourth quarter may not prevent recession with the growing squeeze on incomes likely to drive falls in GDP in November and December, despite a possible boost to consumer activity from the World Cup.

“A half-point interest rate rise on Thursday is expected. However, tightening monetary policy too aggressively could risk worsening the financial outlook for firms and households, and extend the looming downturn.”

For further information, read the ONS Monthly GDP estimate

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