This morning has brought news on the UK economy which is a little disappointing.
Monthly real gross domestic product (GDP) slowed in October 2021, growing by 0.1% compared with 0.6% growth in September 2021. ( UK ONS)
As you can see whilst there was still some growth it was by the minimum amount. This was less than seemed likely from the releases we had seen on the subjects of employment and retail sales. A particular drag is shown below.
Downward contributions to services growth included a 5.5% fall in accommodation and food service activities, driven by a 7.5% fall in food and beverage service activities particularly within restaurants.
So the restaurant and hotel business has been hit again and it appears they cannot buy a break as the new restrictions announced this week will hit them again. I have to say I was a little surprised because I was hearing reports of places returning to busy trade. If we look for more perspective the industry had been recovering until October knocked it back.
Even with the fall, food and beverage service activities grew by 8.9% in the 3 months to October 2021, following strong growth in September 2021.
Another area which dragged on the economy was production.
Production output decreased by 0.6% in October 2021, with water supply the only sector showing growth.
We should be less surprised here as we are at a time of supply shortages although the weakest sector was in fact adding to them.
Mining and quarrying fell by 5.0% in October 2021 due to planned maintenance of oil fields taking place earlier in the summer this year, with extraction of crude petroleum and natural gas falling for the second consecutive month.
With prices for gas surging at that time I am sure there was a rush to get the fields back online and a few mulling the idea of bad timing. Although with the turning down of the proposed new Shell gas field in the North Sea lower gas output seems to be official policy which shows the mess the official energy policy is in.
As to the next bit the regular fall guy which is the weather takes more punishment but I cannot help wondering if the new higher domestic energy prices had an impact too?
Electricity, gas, steam and air conditioning supply fell by 2.9% in October 2021. The distribution of gas fell for the fifth consecutive month, following exceptionally high levels in May 2021 (the highest since December 2001), mainly resulting from adverse weather conditions boosting demand for energy.
In the circumstances ( especially for the car industry) the number below is not so bad.
Manufacturing remained flat in October 2021.
Although it has been essentially flatlining for a while with large swings in individual sectors.
Within manufacturing, output remained flat between September 2021 and October 2021, highlighting a mixed picture across the sector; most notably, the fall of 9.5% from the manufacture of machinery and equipment not elsewhere classified, which was partially offset by a rise of 8.6% in the manufacture of basic pharmaceutical products and pharmaceutical preparations.
We have looked at the swings in the pharmaceutical sector before which seems to operate on a different timetable to the monthly numbers.
The numbers pose a problem for a set of indicators beloved by some and maybe all at the Bank of England.
The IHS Markit/CIPS flash manufacturing PMI rose to 57.7 in October from 57.1 in September.
These days Markit are critiquing their own numbers, make of that what you will.
First, the survey’s output index – which measures the actual month on month change in the volume of goods that each factory produced each month – fell to 50.6 from 52.7 in September. Barring the pandemic-related lockdowns seen in the UK in the spring of 2020 and early 2021, this is the lowest output index reading since the start of 2020 and indicative of the official gauge of manufacturing production falling on a quarterly basis.
So manufacturing is surging ( 57.7) but it isn’t seems to be the message here.
Next on the list comes an area that we have real trouble measuring.
Construction output decreased by 1.8% in October 2021 following an increase of 1.3% in September 2021. This is the largest fall seen in construction since April 2020.
For newer readers there have been more than a few issues with this sector leading to large revisions and I would like to focus in on a particular area.
At the sector level, the main contributors were infrastructure and private new housing which decreased by 7.1% and 4.4% respectively.
It is the fall in private new housing which attracted the attention of Noble Francis.
… According to the ONS, private housing output has fallen in 5 of the 10 months this year & in October 2021 was still 13% lower than in January 2020, which is difficult to square with major house builder trading statements…
He was also troubled by the official numbers for April.
as construction output was at pre-Covid-19 levels in April according to the ONS whilst the industry was still claiming furlough payments from government for 167,600 employees.
As Aretha Franklin sang back in the day.
Take another look and tell me, baby
Who’s zooming who?
Who’s zooming who?
Who’s zooming who?
Services regain their mojo
There has been an overall swing in the pattern of UK economic output as we got used to a narrative of the services sector underperforming which is very different to out usual pattern. But now we have this.
Services output grew by 0.4% in October 2021 and has reached its pre-coronavirus (COVID-19) pandemic level (February 2020). This follows strong growth of 0.7% in September 2021.
We know hospitality was struggling so what balanced that out?
Human health and social work activities grew by 2.6% in October 2021 and was the main contributor to October’s growth in services. Human health activities reached a record high level in October 2021, increasing by 3.5%, with growth from a continued rise in face-to-face appointments at GP surgeries in England.
This is in itself no surprise as we would expect the health sector to be powering ahead. But if we are counting face to face appointments by doctors ( GPs) there is a measurement issue. I think everyone would agree face to face is preferable to telephone or online but how much?
Also we got a type of confirmation of the strong employment situation we have previously noted in the bit I have emphasised below.
Administrative and support activities grew by 3.3% and was the second largest contributor to October’s growth in services. The main contributor to growth was employment activities (growing by 6.7%) particularly within temporary employment agency activities.
Although that has not, so far at least, been matched by overall output growth.
I was wondering if this might be a response to the rise in used car sales and prices?
Wholesale and retail trade and repair of motor vehicles and motorcycles was the main contributor to growth in this industry, growing by 8.1%.
But actually the numbers seem to be swinging wildly.
This follows a large fall of 13.3% in September 2021.
Comment
There are various context’s to this morning’s release. Are the monthly numbers accurate to 0.1%? Then the answer is no in normal times and it is worse now due to all the sectoral changes. But we are so keen to find out where we are that the numbers will resonate a bit.
Also there is another way of looking at where the growth came from.
The NHS Test and Trace and vaccine programmes had a positive 0.1 percentage point impact on October’s gross domestic product (GDP) growth.
There is a subplot here because I had pointed out we could expect a boost from the booster programme and it has arrived earlier than I expected.
The vaccine programme’s adjustment for October 2021 was £500 million, up from £200 million in September as the number of coronavirus vaccinations increased by approximately 130%. October 2021 was the first full month when the NHS delivered coronavirus booster jabs.
Thus we can expect more for November and December. Although with inflation high and rising we have arrived at the stagflation we feared was coming.