This morning has brought us up to date on the second quarter for the UK economy and the figures were awaited even more than normal for two main reasons. The first is the cost of living crisis which has built as 2022 has progressed and the second is the impact of the Platinum Jubilee holiday and celebrations. So let us get straight to it.
UK gross domestic product (GDP) is estimated to have fallen by 0.1% in Quarter 2 (Apr to June) 2022, based on the first estimate.
Thus the first impact is that we have seen a decline albeit of the smallest possible amount. That is the contracting part of my title and the pleasing bit is that it was better than the official forecasts.
Bank ( of England ) staff now expected GDP to have fallen by 0.2% in Q2 as a whole,
Every little helps right now.
Breaking It Down
Services
We see that this was a big player in the decline as we note this.
In output terms, services fell by 0.4% in Quarter 2 2022 with the largest negative contribution from human health and social work activities, reflecting a reduction in coronavirus (COVID-19) activities.
In it was a player we have become used to in the pandemic era where, Test & Trace, Vaccines and even GP appointments have been in play. Well, here we go again.
There was a 5.4% fall in human health and social work activities, reflecting a large reduction in coronavirus activities, such as NHS Test and Trace, COVID-19 vaccination< programme and lateral flow orders over the second quarter.
We looked at this for the May numbers which showed this from Test & Trace and vaccines.
The overall impact of these declines was to detract 0.2 percentage points from monthly GDP in May 2022.
We know can add that a further 0.1% was subtracted from monthly GDP in June. Putting it another way expenditure on the two areas fell from £340 million in May to £230 million in June.
We are not formally told the impact of this but the dataset shows a quarterly fall of just over £6.5 billion from these two sources. So an impact on the quarterly GDP numbers of the order of -1.2%. We do get an estimate of the impact of health and social work overall at -0.5% so rising GP appointments and the like gave us a bit more than half of it back.
In addition there was this.
There was a 1.0% fall in wholesale and retail trade.
So in addition to the struggling retail sales sector we have been following there was this.
The Business Insights and Conditions Survey (BICS) highlighted that around 32% of businesses within the wholesale and retail trade industry reported global supply chain disruptions at the end of the second quarter of 2022.
Switching to the positive side ( as we have way over accounted for the fall) there was this.
The fall in services output was partially offset by increases in output from accommodation and food services (4.7%), driven by increases in accommodation and in food and beverage service activities reflecting rises in mobile food stands and takeaway food shops.
Some of this was no doubt Platinum Jubilee related as it took away with one hand with the extra Bank Holiday and gave with the other as people stocked up for the celebrations. Plus there was something I had noted from time to time as the film and TV industry returned to Battersea Park.
There were also increases in other service activities (7.4%), and arts, entertainment and recreation (3.3%), which had previously been impacted by COVID-19 restrictions.
Actually they also closed Albert Bridge for a weekend for the film Our Man in Jersey.
I guess you will not be surprised to see the impact of people going on holiday.
Administrative and support service activities rose by 1.2% in Quarter 2 2022 driven by an increase in travel agencies, tour operators and other related activities,
Production
There is quite a bit of ying and yang here as any increase right now feels good although it did slow.
Production output rose by 0.5% in Quarter 2 2022, a slowdown compared with the previous quarter when it increased by 1.3%, while the level of production output remains 1.2% below pre-pandemic levels.
Actually flat manufacturing may not be so bad with rising costs.
Overall growth in manufacturing was broadly flat, however there were falls in 7 of the 13 manufacturing sub-sectors.
Also the “swing factor” which is pharmaceuticals was against us this time around.
The largest contributor to the fall in manufacturing was in manufacture of chemicals and chemical products; and manufacture of machinery and equipment.
The rises were interesting as I think it was later we switched to exporting power more often, but perhaps we were supplying LNG gas to Europe.
The quarterly rise in production output was driven by a rise in electricity, gas, steam and air conditioning supply (2.7%), resulting from growth in the manufacture of gas; and electric power generation, transmission and distribution.
As we were not heading for drought then in the way we are now this is harder to figure out. Although maybe it was the campaign to reduce the pumping of sewerage into rivers and the sea.
There were increases in water supply activities (2.9%), because of positive contributions from remediation activities and other waste management services; waste collection, treatment and disposal activities; and sewerage activities.
Finally even with our political class asleep this was still as surprise as you would think we would be producing to the max.
There was a 0.3% fall in mining and quarrying output in Quarter 2 (Apr to June) 2022, following a reduction in mining support service activities.
Construction
Regular readers will know that I have little faith in this numbers because of the way that they are revised both frequently and substantially.
Construction output rose by 2.3% in Quarter 2 2022, and is now 2.7% above pre-coronavirus pandemic levels. Increases in both new work and repair and maintenance contributed to the quarterly growth.
Comment
The details show what is quite a mixed up pattern. We are seeing such swings between different sectors in services that it is extremely likely that the weights used in the calculations are wrong. So the numbers are particularly unreliable at this time for that reason.
Also I have made the point regularly that there are considerable issues with the monthly series which has for the latest two months produced this.
Gross domestic product (GDP) fell by 0.6% in June 2022, after growth of 0.4% in May 2022 (revised down from 0.5%),
With a large factor being this.
The Platinum Jubilee, and the move of the May bank holiday, led to an additional working day in May 2022 and two fewer working days in June 2022.
Another factor that leads to more uncertainty is the way that the inflation measure called the deflator has swung around.
The implied GDP deflator rose by 1.1% in Quarter 2 2022, mainly driven by a 2.7% increase in the implied price of household consumption. Compared with the same quarter a year ago, the implied GDP deflator rose by 6.0%, primarily reflecting the 7.3% increase in the price of household consumption expenditure, which is the fastest annual household rate since 1991.
Regular readers may recall my post of the 12th of August 2020 when I pointed out that “our widest measure of inflation” or the deflator was at 6.2% when we were otherwise told there was no inflation.
If we now switch to perspective we have this.
The level of quarterly GDP in Quarter 2 2022 is now 0.6% above its pre-coronavirus level (Quarter 4 (Oct to Dec) 2019), and 2.9% higher than Quarter 2 2021.
So the economy is bigger than before but we are now experiencing the stagflation we have both feared and expected pretty much all this year.
In terms of international perspective I have done some rough numbers for the first half of this year.
Germany 0.8%
UK 0.7%
France 0.3%
US -0.7%
Finally let me show you the number which is a bulwark against this becoming a debt crisis.
Nominal GDP increased by 1.1% in Quarter 2 2022 and is 9.1% higher than the same quarter a year ago. It is now 10.5% above its pre-coronavirus pandemic levels.
This applies to the around 78% of our debt which is on fixed interest-rates or what are called conventionals. Basically there are more pounds around to pay them with so that part of the debt metric improves. Just to be clear that is in isolation and does not include falling real wages or other cost of living issues.