This morning has brought some good news for the UK economy especially in the circumstances. As I shall explain later the way 2022 is heading it looks like we are going to need it. But let us start with what was in economics terms a sort of ta da moment.
Gross domestic product (GDP) fell by 0.2% in December 2021 to equal its pre-coronavirus (COVID-19) pandemic level (February 2020);
Or at least so we thought as that was the level of monthly growth which all things being equal would have meant the quarter as a whole was back to pre-pandemic levels. As it turned out some downwards revisions meant it was only December that did that. The shifting sands of economic measurement changed the background.
Monthly real gross domestic product (GDP) is estimated to have fallen by 0.2% in December 2021, compared with a 0.7% growth in November 2021 (revised down from 0.9% growth).
In terms of the breakdown we were fearing for hospitality and hence services as a whole and this is how it turned out.
Accommodation and food service activities was the second largest contributor to December’s fall in services, down by 9.2%. Both accommodation and food and beverage service activities fell in December, by 11.5% and 8.1% respectively, with businesses reporting impacts from the Omicron variant.
Whilst that area had the largest decline the bigger retail sector ended up having a larger overall impact.
Wholesale and retail trade fell by 3.2% in December 2021 and was the main contributor to December’s fall in services . The main driver of this fall was retail trade, which contracted by 3.7%. The Omicron variant of coronavirus was reported by some retailers as affecting retail footfall.
Bringing them together we got this.
Output in consumer-facing services fell by 3.0% in December 2021,
Putting that another way this area has seen an economic depression which is ongoing.
Consumer-facing services were 8.4% below their pre-coronavirus levels (February 2020) in December 2021, while all other services were 2.8% above.
This is an issue which the high street has been suffering from for some time. Also so has some of the hospitality industry and I am thinking of pubs here.
Pubs suffered a loss of £5.7 billion from beer sales alone last year, the equivalent of 1.4 billion fewer pints sold, according to the organisation.
I know that some of it represents a switch in favour of wine and other drinks but the sector has been under pressure for some time.
Against all of this was again a move we were expecting.
The NHS Test and Trace and COVID-19 vaccination programme had a positive 0.7 percentage point impact on gross domestic product (GDP) in December 2021, with output of these services increasing by 51% and 19% respectively.
Or if you prefer they provided a £1.1 billion monthly boost to UK GDP.
Bringing it all together we ended up with this.
Services output fell by 0.5% in December 2021 but remained 0.5% above its pre-coronavirus (COVID-19) pandemic level (February 2020).
So a rough month but overall we have returned to the normal UK situation of services being the leader of the pack.
Production
There was better news from this sector although the growth seems to have been shifted from the November numbers.
Production output increased by 0.3% in December 2021, with growth in three out of the four sub-sectors. This follows growth of 0.7% in November 2021 (revised down from 1.0%).
Regular readers will be aware of the way that whilst overall the pharmaceutical sector is a UK strength but in practice swings in and out of the numbers as its pattern does not fit monthly recording.
Manufacturing grew by 0.2% in December 2021, with the manufacture of basic pharmaceutical products and pharmaceutical preparations (up 12.0%) and the manufacture of transport equipment (up 3.1%) the main drivers of this growth.
As a technical issue with all the price rises it will be very hard to measure gas right now in real terms.
Electricity, gas, steam and air conditioning supply increased by 1.6% in December 2021, with distribution of gas increasing by 5.6%.
This next bit makes me want to bang my head against the wall as we decide to restrict new gas fields in an energy crisis.
Mining and quarrying was the only sector to fall in December 2021, with a contraction of 3.1% driven by a 2.7% fall in extraction of crude petroleum and natural gas.
Construction
This presumably has benefited from what has been so far a relatively mild winter.
Construction output increased 2.0% in December 2021 following an increase of 1.9% in November 2021 (revised from a 3.5% growth).
Which meant it finally broke new ground.
Construction output was above its pre-coronavirus (COVID-19) pandemic level (February 2020) for the first time, by 0.3%
Although there is a reminder of my theme that the numbers for this sector are open to doubt.
with the largest revisions seen in September and November 2021 (down 1.4 and 1.6 percentage points respectively)
What about the fourth quarter?
In relative terms this too was good.
UK gross domestic product (GDP) is estimated to have increased by 1.0% in Quarter 4 (Oct to Dec) 2021, following a downwardly revised 1.0% increase in Quarter 3 (July to Sept).
We were not affected too much by the Omicron scare in December although care is needed because we only maintained the same quarterly growth rate due to a downwards revision.
revisions to 2021 data – in line with the National Accounts Revisions Policy – saw Quarter 4 2021 remain below its pre-coronavirus level……..The level of quarterly GDP in Quarter 4 2021 is now 0.4% below its pre-coronavirus level (Quarter 4 2019).
The year just gone was a strong one economically.
UK gross domestic product (GDP) is estimated to have increased by 1.0% in Quarter 4 (Oct to Dec) 2021 (Figure 1). Compared with the same quarter a year ago, GDP increased by 6.5%.
Following the large 9.4% fall in 2020 because of the initial impact of the coronavirus (COVID-19) pandemic and public health restrictions, UK GDP saw an annual rise of 7.5% in 2021.
Trade
There was a boost from this area.
Total export volumes rose by 4.9% in Quarter 4 2021, driven by an 11.2% increase in the exports of goods, specifically fuels, chemicals, and machinery and transport equipment.
The good export news was accompanied by a fall in imports.
Total import volumes fell by 1.5% in Quarter 4 2021. The fall in services imports by 3% was driven by falls in telecommunications, financial services, and manufacturing and maintenance. The fall in import goods by 1% was driven by unspecified goods, machinery and transport equipment, and crude materials.
Comment
Overall this is a decent set of numbers and it does get a boost from something which is the opposite of the line the MSM have pursued on trade with the European Union. Let me give Thomas Sampson of the LSE credit for looking at the actual numbers.
But – and this is surprising – effect of TCA very different for exports vs imports Exports. EU exports bounced back strongly after big fall in January. Data for second half of 2021 suggests TCA has not reduced EU exports relative to non-EU exports (at least so far)
So after a jolt UK exports have recovered but we are importing much less from the EU.
Imports. EU imports fell around 30% relative to non-EU imports in 2021. This gap is not only large, but has been growing over time.
Care is needed as more recently the rise in energy imports will be there but the move was happening before that.
Back to my point that 2022 will be a lot tougher. Much of this is around the cost of living crisis as we see inflation impact on the economy. That will drain real incomes and consumption. Yesterday gave is another feature of that as the falls in the bond market suggested another 0.25% on interest-rates in the US. So there will be a squeeze from things such as mortgage rates and that is already in play with my leading indicator for it the UK 5-year yield at 1.44% this morning. We have not seen a squeeze like this for a while.