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Stronger-than-expected growth masks growing challenges

Author: ICAEW Insights

Published: 14 Jul 2022

Latest official GDP estimate confirms that the UK economy rebounded in May after shrinking in April, as GP appointments boost the headline figure.

The monthly GDP figures released on Wednesday 13 July 2022 by the Office for National Statistics (ONS) reported that UK gross domestic product (GDP) is estimated to have grown by 0.5% in May 2022. This follows a fall of 0.2% in April 2022 (revised up from a 0.3% fall). Monthly GDP is now estimated to be 1.7% above its pre-pandemic level in February 2020.

Services grew by 0.4% in May 2022 and was the largest contributor to GDP growth. This follows a fall of 0.2% in April 2022 (revised up from a 0.3% fall). Human health and social work activities increased by 2.1% in May and was the main contributor to that month’s growth in services despite the substantial reduction in NHS Test and Trace and vaccination activity. Growth in human health activities in May 2022 was mainly driven by a large rise (15%) in GP appointments in England.

Further evidence of the cost-of-living squeeze can be seen in output in consumer-facing services, which fell by 0.1% in May 2022, following downwardly revised growth of 2.2% in April. Consumer-facing services was 4.7% below its pre-pandemic levels in May 2022.

Production output rose by 0.9% in May 2022, driven by growth of 1.4% in manufacturing; there was also a 0.3% increase in electricity, gas, steam and air conditioning supply. Manufacturing increased by 1.4% in May 2022, with growth increasing in 12 of the 13 manufacturing sub-sectors. The largest contribution to growth was in other manufacturing and repair (up 3.4%), which saw positive growth in all five industries. This follows a fall of 4.0% in April 2022.

Construction output increased by 1.5% in May 2022 and is now at its highest level since monthly records began in 2010. Following upwardly revised April 2022 growth of 0.3%, this is the seventh consecutive rise in monthly growth. This was last achieved between May and November 2020, when the industry recovered from the initial large falls at the start of the pandemic. Construction output is now 4.1% above its pre-pandemic level (February 2020) in May 2022. 

Commenting on the figures, Suren Thiru, Economics Director at ICAEW, says: “The latest figures confirm that there was a better-than-expected rally in economic activity in May. While all sectors reported solid growth, the key services sector was the largest contributor to overall GDP growth, reflecting a large rise in GP appointments.

“Solid growth in May should be followed by a notable drop in output in June as the working days lost due to the Jubilee bank holiday and surging inflation – including from record fuel prices – drag on activity.

“The UK economy remains perilously close to recession. Prolonged political uncertainty could weaken economic conditions by stifling investment and adding to inflation, through triggering further falls in sterling’s value.

“While targeted fiscal support is required to protect the people and businesses being hardest hit, more focus is needed to ease the supply side constraints that continue to stoke inflation and limit economic activity.” 

For further information, read the ONS Monthly GDP estimate.

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