Today’s economic growth figures serve as a reminder that it’s important to be specific about what’s actually being measured. Headline GDP numbers show a contraction of 0.3 per cent in April: worse than what was expected (the forecast consensus was a fall of roughly 0.1 per cent), suggesting a fall in economic activity and output, pushing the UK further towards recession territory.
But break down the headline number and another narrative emerges. A large driver of negative growth was the ‘significant reduction in NHS Test and Trace’ and vaccine rollout efforts, as demand for these services has greatly diminished. Subtract this part of the equation, and economic growth in April is ever so slightly positive, around 0.1 per cent.
This doesn’t mean the economy is in any kind of rude health: monthly GDP updates have shown the economy to be stagnant, if not contracting, since the start of the year. Looking at the data we have for 2022 and the forecasts for the coming months and years paints a very worrying, weak picture for the UK economy.
But accounting for massive state-run programmes in economic output – arguably the transparent thing to do – can also skew our understanding of economic activity though just the headline number. As Capital Economics points out this morning, there is not much evidence (yet) that soaring inflation and rising interest rates have taken their toll on economic activity, with consumer-facing services growing by over 2 per cent in April.
But they will soon, with inflation nearly double digits and interest rates expected to increase again (albeit possibly at a slower rate) when the Bank of England’s Monetary Policy Committee votes again at the end of the week. It’s all another example of why the technical definition of a recession may not help us much in the coming months either: meeting the technical definition in the headline numbers is not the determining factor for whether people feel fine financially or significantly poorer.