February was a no-growth month, according to the latest update from the Office for National Statistics, published this morning. A rise in construction was offset by a fall in services, resulting in zero headline growth.
The strikes are taking their toll. The biggest contribution to the fall in services came from education and public administration, as striking teachers downed tools. Education fell by 1.7 per cent. Meanwhile public administration fell by 1.1 per cent, as ‘this industry also saw industrial action take place within the civil service during February 2023.’
An optimist might note that while the strikes offset economic activity in other sectors, at least there was some growth to point to: monthly construction figures had a comeback, registering a 2.4 per cent increase in volume, compared to a 1.7 per cent fall in January. Meanwhile consumer-facing services grew by 0.4 per cent in February, led by the retail sector, which grew 1.2 per cent — the largest uptick seen in four months.
This bump in retail is especially important: it suggests that even with inflation still in double digits, and rising interest rates working their way through the system, consumers are still confident enough to spend. This may well change in the coming months, especially if the rate of inflation does not start falling at the pace both the government and Bank of England expected it would at the start of the year. But for now, it seems consumers are ticking along just fine, leading to at least small levels of growth.
There are other reasons for (limited) optimism. January’s growth figures were revised upwards, from 0.3 per cent to 0.4 per cent. Looking at the slightly bigger picture, GDP was up by 0.1 per cent in the three months leading up to February. These are not growth figures that one can boast about, but as the battle of the forecasts plays out (the Office for Budget Responsibility most recently predicted the UK would avoid recession this year; the IMF is still predicting a shallow recession for the UK just this week), the latest figures suggest a tip towards the more optimistic forecast.
As always, one can only glean so much from monthly data, and we have some dicey months ahead. There will be plenty more strikes to take into account: growth in health activity grew by 0.3 per cent in February, for example, helping to offset other falls in services. This figure is likely to take a hit when the April figures come out, given the four-day junior doctors’ strike that is currently taking place. Capital Economics notes this morning that the economic resilience still on show makes further rate hikes from the BoE more likely, as they try to get inflation down. Such a move risks recession (Capital Economics is predicting a ‘mild recession’ later this year ‘involving a 1 per cent fall in GDP.’)
We must keep in mind what we’re really debating here: the difference between very little (or no) growth and mild contraction will determine whether the UK formally enters recession. But both are bad prospects which take a hit to our standard of living. It is already shaping up to be another difficult year.
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