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Economy flatlining as mini-Budget chaos risks longer downturn

Author: ICAEW Insights

Published: 12 Oct 2022

The latest official GDP estimate confirms that the UK economy contracted in August as industrial production and output from businesses specialising in consumer-facing services fell.

The monthly GDP figures released on Wednesday 12 October 2022 by the Office for National Statistics (ONS) reported that UK gross domestic product (GDP) is estimated to have fallen by 0.3% in August 2022, after growth of 0.1% in July 2022 (revised down from the previous estimated growth of 0.2%). Monthly GDP is now estimated to be at the same level as it was pre-COVID-19 (February 2020). There has been a continued slowing in the three-month-on-three-month growth measures (a better measure of the underlying trend), where GDP also fell by 0.3% in the three months to August compared with the three months to May 2022.

Production output fell by 1.8% in August and was the main contributor to the fall in overall GDP, with negative growth in three of the four sectors. This is the sector’s third consecutive fall, after dropping by 1.1% in July 2022 (revised down from 0.3% in our previous publication). Manufacturing was the main driver of negative production growth, falling by 1.6% on the month. Mining and quarrying were the second-largest contributor to negative production growth in August 2022, falling by 8.2%. This was wholly driven by extraction of crude petroleum and natural gas, which decreased by 10.6% on the month because of more planned maintenance than usual in the sub-sector. Electricity, gas, steam and air-conditioning supply fell by 0.6%, with a 1.2% fall in electric power generation, transmission and distribution being slightly offset by manufacture of gas, which grew by 0.4%.

Services fell by 0.1% in August 2022, following growth of 0.3% in July 2022 (revised down from 0.4% growth in our previous publication). Human health and social work activities fell by 1.3% in August 2022 and were the largest negative contributor to the services fall. This was entirely driven by human health activities, which fell by 1.9% in the month.

The second-largest negative contribution within services came from arts, entertainment and recreation, which fell by 5.0% in August 2022. This fall was almost entirely driven by sports activities and amusement and recreation activities, which fell by 9.4% in the month after a strong July, which included a number of large sporting events such as UEFA Women’s Euro 2022. Overall, output from consumer-facing services firms fell by 1.8% in August 2022, following growth of 0.7% in July 2022.

In contrast, construction output increased by 0.4% in August, the second consecutive monthly growth following the upwardly revised increase to 0.1% in July. At the sector level, the main contributors to the increase were infrastructure, private industrial and private housing new work, which increased 5.3%, 4.3% and 1.7% respectively.

Commenting on the latest ONS GDP figures, Suren Thiru, Economics Director at ICAEW, said: “The latest data confirms the economy was flatlining even before the chaos caused by the Chancellor’s mini Budget. 

“August’s negative outturn should be followed by a more marked drop in September’s output as the extra bank holiday for the Queen’s funeral will have added to the downwards pressure on activity.

“The government has needlessly risked a longer recession, with any boost from the energy package likely to be dwarfed by a sustained squeeze on UK output from persistently high inflation, punishing interest-rate rises and acute financial-market turbulence.

“The slump in sterling is a double-edged sword for firms trading overseas. While it may improve the competitiveness of some traders, most UK exporters are also importers and so face much higher input costs due to the weakening currency.”

For further information, read the ONS Monthly GDP estimate.

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