Data released this morning from the ONS has revealed that the UK managed to deliver 0.2% growth in GDP for the month of August, following a less favourable picture reported in their July data. But does this mean we can dial down concerns about the health of the UK economy? What about the prospect for recession?
Finance experts have been sharing their views with on today’s GDP data – and what it means for the world of investment as well as the UK’s economic prospects going forward.
UK economic performance stronger than anticipated, but the sun is not yet shining – Jeremy Batstone-Carr, European Strategist at Raymond James Investment Services comments:
“Today’s GDP increase of 0.2% shows that although the UK’s economic performance has been stronger than initially anticipated, the storm rumbles on with the Bank of England’s aggressive interest rate policy.
Economic activity rose from the ashes in August following a drought in July, placing output 0.6% above last year’s levels. Economic growth was supported by increased retail activity and an end to industrial action in the education sector. Colder-than-expected weather conditions in August also served to heat up the economy and support higher energy usage.
Nonetheless, the overall outcome has failed to put the wind in the sails of the UK economy. Persistent strikes in the health and transport sectors and decreased activity across the mining, quarrying, manufacturing and industrial sectors have dampened returns.
While the UK has so far weathered the tempestuous climate of a cost-of-living crisis and elevated interest rates, resistance is slowly diminishing. The phasing out of government-provided financial support designed to limit the impact of the energy crisis, coupled with high interest rates, will make it increasingly hard to stand tall against the rain.”
Richard Carter, head of fixed interest research at Quilter Cheviot comments:
“This morning’s UK GDP figure provides another small glimmer of hope that the UK could scrape through and avoid a recession, with a slight 0.2% uptick in August following a disappointing 0.6% dip in July (revised down in the latest figures). Just this week the IMF predicted that the UK would be the slowest growing economy across the G7 next year, and though 2024 may prove more difficult, this morning’s figure provides some relief that though economic growth is challenging, it is not yet non-existent for the UK.
We have also started to see hints that the pressure of the cost-of-living crisis is beginning to lift for households. Prices remain considerably higher than pre-pandemic periods, but disposable incomes are starting to improve which has provided some much-needed relief to those who have been struggling. The Bank of England’s decision to pause rate hikes has also offered some respite to homeowners and the housing market which have been grappling with high mortgage rates.
Though the Bank of England has pressed pause on its rate hiking cycle for now, it still has an incredibly challenging job to do and it may still return to raising rates later in the year or into the next. However, with an election fast approaching the Bank will be keen not to overcorrect and will instead begin to assess what impact its action has had to date. We don’t necessarily see the case for further rate rise and things will continue to bite for consumers as a result of the lag effect of the rate rise. With rates now higher for longer, consumers and businesses will need to adapt to this new environment, one many haven’t faced in their lifetimes.
The economy may be holding up for now, but whether or not the UK truly manages to avoid a recession is yet to be seen. The speed of interest rate rises and the impact of the cost-of-living crisis may mean the pain is simply delayed, and 2024 could prove considerably more difficult.”
Commenting on this morning’s UK GDP data Melanie Baker, senior economist at Royal London Asset Management, said:
“Despite past ONS revisions improving the Covid-era backstory for GDP, since early 2022 it still looks like the UK economy has barely grown.
The past three months have again been bumpy for UK GDP, and the economy looks on track for a fall in GDP in the third quarter. The extra bank holiday hit output in May, June bounced back stronger than expected, then July saw a bigger than expected fall. Taking all these months together, GDP hasn’t grown since April. If, say, the economy grew another 0.2% month-on-month in September, that would leave Q3 tracking a 0.1% quarter-on-quarter fall in GDP.
For now, the picture of the economy coming from the data is lacklustre. Given how much monetary policy tightening we’ve had it is still somewhat surprising that the UK economy has managed to avoid recession so far. I am not convinced it will continue to do so. PMI business surveys are looking consistent with falls in private sector output and the labour market has been showing more signs of weakness.
We’ve still got a few data points to go before the Bank of England’s next meeting on 2 November and the CPI release next week will probably be the most important of those. I expect headline and core inflation to move lower in coming months. Soft activity data and labour market data, however, would help give the Bank of England the confidence to view inflation as heading sustainably lower as we move through the next quarters.”
Richard Flax, Chief Investment Officer at Moneyfarm, the European digital wealth manager with more than 90,000 active investors and almost £2.5 billion in assets under management comments:
“The UK economy bounced back in August, with GDP rising by 0.2% in line with expectations. The service sector grew by 0.4%, while production and construction sectors contracted by 0.7% and 0.5% respectively. Meanwhile, July’s GDP data was revised to -0.6%, worse than the initial estimate of -0.5%. The anaemic growth comes under an environment of high interest rates and persistent inflation, which is weighing on business sentiment and discouraging consumer spending.
While the UK continues to doge a recession, the economic outlook remains bleak. In the IMF’s half yearly report on the global economy published on Tuesday, it warned that the UK faces fairly subdued growth and ‘persistent’ inflation in 2024, estimating that Britain will be the slowest growing economy in the G7 club of advanced nations next year.
The BoE will be weighing the August GDP and the July revision at its next meeting and will likely lean towards a pause to give the economy some breathing space.”
