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Economy treads water despite GDP rebound

Author: ICAEW Insights

Published: 14 Jun 2023

Latest official estimate confirms that the UK economy returned to growth in April following service sector rebound but industrial and construction output fell.

The monthly GDP figures released on Wednesday 14 June 2023 by the Office for National Statistics (ONS) reported that UK gross domestic product (GDP) is estimated to have recorded 0.2% growth in April 2023, after contracting by 0.3% in March. Monthly GDP is now estimated to be 0.3% higher than its pre-covid levels (February 2020). The three-month-on-three-month growth measure (a better measure of the underlying trend) was 0.1% in the three months to April, compared with the previous three-month period.

Services grew by 0.3% in April, following a fall of 0.5% in March. The largest contributor to the rise was a 1.0% rise in the wholesale and retail trade; repair of motor vehicles and motorcycles sub-sector, which saw growth across the board. The wholesale and retail trade and repair of motor vehicles and motorcycles industry was the main contributor to this growth, with a 3.9% growth in April. There was also growth of 0.5% in retail trade, except for motor vehicles and motorcycles, and a 0.4% growth in wholesale trade, except for motor vehicles and motorcycles.

Output in consumer-facing services rose by 1.0% in April, after a fall of 0.8% in March when unseasonably wet weather limited activity. Looking at the broader picture, consumer-facing services grew by 0.1% in the three months to April. The largest contribution to the rise in consumer-facing services came from food and beverage service activities, which grew by 2%.

Industrial production output fell by 0.3% in April, following growth of 0.7% in the previous month. Manufacturing was the largest contributor to the decline with output dropping by 0.3%. The manufacturing sector saw falls in eight of its 13 sub-sectors with the manufacture of basic pharmaceutical products and pharmaceutical preparations, which fell by 5%, being the largest negative contributor. Followed by manufacturing of computer, electronic and optical products, which fell by 3.8%.

Construction output dropped by 0.6% in April, following two months of successive months of positive growth. The decline in monthly output came from a decrease in new work (-1%) which was slightly offset by an increase in repair and maintenance activity (+0.1%). 

Commenting on the latest ONS GDP figures, Suren Thiru, Economies Director at ICAEW, said: “Although GDP rebounded in April, this reflects more the reversal of the squeeze on service sector activity from poor weather in March, than a meaningful improvement in our underlying growth trajectory.

“April’s upbeat reading should be followed by a notable decline in May GDP as the extra bank holiday for the Coronation and ongoing strike action will have stifled activity across much of the economy.

“While lower energy bills should boost incomes and support output over the summer, the financial squeeze from a higher tax burden and soaring borrowing costs means our economy may continue to tread water for some time. 

“If the Bank of England continues to hike interest rates, as is likely next week, they risk reigniting recession fears by further increasing the financial fragility of households and businesses.”

For further information, read the ONS Monthly GDP estimate.

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