Sarah Giarrusso, Investment Strategist at Tilney Smith & Williamson, the wealth management and professional services group, comments on the latest UK GDP data:
UK real monthly GDP rose 0.6% in September relative to consensus expectations of 0.4%. The annualised rate was 5.3%, down from the August figure of 6.9%. The ONS stated GDP is 0.6% below the pre-pandemic level. The services sector printed a 0.7% monthly rise, whereas the year-on-year figure came in at 5.7%. Industrial production surprised on the downside and slowed even further than expected falling 0.4% for the month relative to consensus expectations of a 0.2% increase.
The September annualised GDP figure slumped slightly from the previous month’s reading as a number of economic constraints were exacerbated. Labour shortages and supply chain disruptions remain the biggest headwinds to businesses. According to CBI survey data manufacturing businesses are being hit especially hard by the labour shortages. This data is at its highest level since 1975 with net balance of 36% of businesses reporting this as a limiting factor. Whereas services businesses are less affected with 19% reporting labour shortages limiting their business. Data from the ONS also reflects this, showing job vacancies at their highest level since their data began in 2002.
Supply chain disruptions are lasting longer than had been expected. The same CBI survey data revealed a net balance of 64% of businesses reporting lack of material and equipment as a limiting factor. Given these constraints are a result of the global pandemic, we would expect these factors to be transitory in nature and for their effects to ease over the coming months.
Despite these headwinds, UK GDP for 2021 is likely to show 7% growth and market consensus estimates for 2022 showing a still-strong 5% increase. Estimates from the Bank of England project that in Q1 2022 UK GDP will return to its pre-pandemic Q4 2019 level. We therefore think it unlikely the UK is heading into a stagflationary environment of low growth and high inflation in the near term.