UK GDP growth is strong but inflation is the danger

by Shaun Richards

In these uncertain and stressful times it is nice to have some good news and the UK has produced some this morning with its economic output numbers.

Gross domestic product (GDP) bounced back in January 2022, increasing by 0.8% after falling by 0.2% in December 2021, when the Omicron variant of the coronavirus (COVID-19) and Plan B restrictions had a more significant impact;

In fact this is pretty strong monthly growth. It was a lot better than the market expectation of more like 0.2% but as we regularly observe they are frequently wrong. We also learn that on an overall basis the Omicron variant had little effect and much less than previous episodes of the pandemic.

In fact all of the main areas of the economy grew in January.

All sectors grew in January 2022, with services up 0.8%, production up 0.7% and construction up by 1.1%.

The pattern has returned to what we previously considered to be normal with services both dominating and leading the way.

All sectors contributed positively to GDP growth in January 2022. Services were the main driver contributing 0.6 percentage points, with production and construction both contributing 0.1 percentage points

So let us take a look.


There was a bounce back from December here.

Wholesale and retail trade grew by 2.5% in January 2022 and was the main contributor to January’s growth in services. The main driver of this growth was wholesale trade, which grew by 3.8%,

The detail was interesting as w mull whether businesses and people were trying to get ahead of price rises, although of course they did not fully know what was on its way.

In particular, there was strength seen in wholesale of other specialised materials, this includes items such as wood, metal and hardware. January 2022 saw this sub-sector’s first positive growth since September 2021.

Another area grew faster but had a smaller overall impact.

Information and communication was the second largest contributor to the growth in services, which grew by 2.9%. Computer programming, consultancy and related activities grew by 6.5% and motion picture, video and tv programme production, sound recording and music publishing activities grew by 6.7% in January 2022.

It seems the media industry is back and they were previously a strength for the UK economy. On a local level they do seem to have returned to Battersea Park although the last couple of weeks has been quieter.

One area saw quite a swing after its troubles in December.

Output in consumer-facing services grew by 1.7% in January 2022, following a 0.2% fall in the previous month, reflecting the impact of the Omicron variant. The January increase was mainly driven by a 6.8% growth in food and beverage service activities following a fall of 8.1% in December 2021, and a 1.9% growth in retail trade.

In terms of usual patterns that is very different as the Xmas boom and January hangover got rather turned on their heads.

There was an area which declined which I wonder if it is related to Covid as we move on?

The largest negative contributor to services growth in January 2022 was professional, scientific and technical activities (down 1.9%). Scientific research and development was the main driver of the decrease with partially offsetting upward contributions from other areas of professional activities, including accounting, bookkeeping and auditing activities; and architectural and engineering activities.


This is where the story gets quite a bit more nuanced.

While Human Health grew by 2.0% overall, the NHS Test and Trace and COVID-19 vaccination programme detracted 0.1 percentage points from GDP growth in January 2022

So the nuance is nuanced as well. But let us dig deeper.

We are primarily funded by readers. Please subscribe and donate to support us!

Increases in the test and trace programme (growing 20%) were offset by a large decrease (falling 73%) in the number of vaccinations, following a drive to administer booster doses in December.

As quite a few people I know were testing themselves like it had gone out of fashion in December the only reason I can think of for an increase was that supply of tests improved as there were previously shortages. Also we get another nuance from the way GP appointments are in play in GDP terms.

All other aspects of Health contributed 0.2 percentage points to the change in GDP in January 2022, with GP appointments rising by 1.9% in January.


It is welcome to see this sector not only grow but be led by manufacturing.

Production output increased by 0.7% in January 2022, primarily driven by 0.8% growth in manufacturing. This follows growth of 0.3% in December 2021.

The growth was also pretty broad-based.

The growth in manufacturing in January 2022 was widespread with increases in 10 out of the 13 sub-sectors, partially offset by falls of 23.3% in the manufacture of basic pharmaceutical products and pharmaceutical preparations and of 4.5% in the manufacture of transport equipment both of which increased strongly in December 2021.

So it would have been even stronger with the pharmaceuticals merry-go-round.

Let me also note another sector which has been out of favour ( although I am sure the establishment is busy redacting the evidence as I type this) but is sending an Arnie style “I’ll be back” message.

Mining and quarrying grew by 2.0%, driven by extraction of crude petroleum and natural gas (up 1.0%) and other mining and quarrying (up 7.7%).


This grew too.

Construction output increased 1.1% in January 2022 following an increase of 2.0% in December 2021. This is the third consecutive monthly growth greater than 1.0%.

Although it was repair rather than new work which after the winds ( where I live required a new wall as you can see from the picture feed) seems likely to carry on.

The increase in monthly construction output in January 2022 was driven solely from an increase in repair and maintenance (4.6%) while new work saw a decline, decreasing 0.8%.


If we now take more of a perspective the news is also good. We can calculate an equivalent for quarterly GDP.

GDP grew by 1.1% in the three months to January 2022.

So a strong rate of growth and we are now ahead of the previous peak.

In January 2022, GDP was estimated to be 0.8% above its pre-coronavirus (COVID-19) pandemic level (February 2020)

But within this there is an issue and the breakdown has a highlight from me to show it.

The main contributors to monthly GDP growth between February 2020 and January 2022 were human health and social work activities, information and communication and professional, scientific and technical activities.

We recorded Test and Trace and Vaccines as contributing £3.69 billion to GDP in January. As time passes we will need to replace much and then most of that. The issue is complex as for example Scotland seems to be seeing another wave. But over time other sectors of the economy need to replace that output for us to stay where we are let alone grow.

Also even the GDP figures cannot avoid the inflation issue.

Businesses also reported that the cost of inputs had increased significantly, with pressures because of the cost of electricity and fuel being cited often. Some businesses also referenced that the cost of labour was an issue for them.

In the meantime things have got much worse.

So was that the best month for the year as we get ready for stagflation? Let us hope we can at least edge forwards.


Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.