Snapshot

Could bust follow UK’s post-Covid boom?


Monthly real GDP growth rose from an upwardly revised rate of 0.2% in October to a strong 0.9% in November, beating consensus expectations of 0.4%. The latest release is also significant as it shows that the level of UK output has now surpassed the previous pre-pandemic peak.

On a rolling three-month on three-month basis, growth accelerated from 0.8% to 1.1%, which bodes well for the final quarter of the year. On a year-on-year basis, this equates to 8% growth.

Within the details of the release, services activity recorded another strong month with 0.7% growth, helped by a better than usual Black Friday. Transport and storage services activity jumped 3.8% in the month, thanks to strong retail sales (up 1.4%), which also helped lift wholesale and retail activity.

Industrial output rose 1%, largely driven by the manufacturing sector which grew by 1.1% during November. Meanwhile, construction activity grew by 3.5%, more than reversing the 1.7% contraction  the previous month.

Overall, the latest GDP figures suggest that the economy was performing well towards the end of the year. Of course, some restrictions including work from home orders were reintroduced in response to rising cases and concerns over the Omicron variant of Covid.

This may cause output to dip in December, especially for entertainment services. However, anecdotal evidence from retailers suggest that is has been a strong season for sales, which should support momentum heading into the new year. This should also provide enough evidence for the Bank of England to raise interest rates again in February.

However, near-term strong growth may falter by the spring as many homes will see their energy bills rise by just over 50%, along with increases in national insurance (NI) contributions (payroll tax).

Pressure is mounting on the government to cut VAT on home energy, and to provide additional support, including potentially delaying the increase in NI. Inflation is forecast to peak close to 7% in April, squeezing households’ finances severely.

Excess savings built up during the pandemic can act as a safety cushion, but if consumer confidence slips, so will spending. Though not in our baseline forecast, there is a significant risk of a short recession during the summer.

 

The views and opinions contained herein are those of the Authors, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.

 

This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.

 

Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and investors may not get back the amount originally invested.

 

Schroders has expressed its own views in this document and these may change (to be used if the 1st statement above is not being used).

 

Schroders will be a data controller in respect of your personal data. For information on how Schroders might process your personal data, please view our Privacy Policy available at www.schroders.com/en/privacy-policy or on request should you not have access to this webpage.

 

Issued by Schroder Investment Management (Europe) S.A., 5, rue Höhenhof, L-1736 Senningerberg, Luxembourg. Registered No. B 37.799. For your security, communications may be taped or monitored

 

The forecasts stated in the document are the result of statistical modelling, based on a number of assumptions. Forecasts are subject to a high level of uncertainty regarding future economic and market factors that may affect actual future performance. The forecasts are provided to you for information purposes as at today’s date. Our assumptions may change materially with changes in underlying assumptions that may occur, among other things, as economic and market conditions change. We assume no obligation to provide you with updates or changes to this data as assumptions, economic and market conditions, models or other matters change.