Have the prospects of a recession been overstated? That would be the most optimistic reading of this morning’s update from the Office for National Statistics, which released the latest set of monthly GDP data showing 0.5 per cent growth in October. This is the biggest monthly rise since January, when the economy was bouncing back from a voluntary slowdown in activity when the Omicron variant of Covid hit last Christmas.
Unfortunately, a breakdown of the data waters down that optimism. October’s 0.5 per cent growth followed a 0.6 per cent contraction in September, half of which the ONS thinks was directly linked to the bank holiday added to the calendar for the late Queen’s funeral. Much of October’s headline growth figure will be reflecting displaced and delayed economic activity from September, when businesses had shorter opening hours or were closed altogether during the mourning period.
And then there is the economic activity that, while rising, gives us no meaningful indication about the state of the private sector. Services, for example, grew by 0.6 per cent in October (after falling 0.8 per cent in September). But the second biggest contributor to this figure was health activity, which was ‘solely driven by a 1.8 per cent rise in human health activities in October,’ the ONS says, ‘where there was an increase in underlying health activities and a rise in coronavirus testing and vaccinations for the second consecutive month because of the autumn booster campaign’. Important public health work, no doubt, but not a metric that gives us much insight as to how businesses are holding up as they hover in recession territory.
Meanwhile, the ‘broader picture’ still points to economic contraction, as GDP fell by 0.3 per cent in the three months leading up to October. There is little evidence of any major uptick in economic activity. Sectors that did grow, such as consumer-facing services (up 1.2 per cent), were still smaller than the hit they took in September (down 1.7 per cent). Others, such as production, stayed essentially flat – showing just 0.2 per cent growth in October.
While debate continues around the nature of the UK’s expected recession – and how long it will last (the CBI, for example, is much more optimistic than the Bank of England) – the broad consensus this morning is that October’s figures are probably a fluke, with Chancellor Jeremy Hunt warning that the economy is likely to contract further before growth improves. It’s a rather negative narrative about an economy that experienced 0.5 per cent growth just two months ago — but an acknowledgement that there are far more warning signs in the data than positives.
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