No more videos please Sunak

Unlock the Editor’s Digest for free

The post image from last month is the shot. Here is today’s chaser, courtesy of mainFT.

The UK economy unexpectedly contracted in October, with all three main sectors reporting a fall and fuelling concerns over the negative impact of high borrowing costs.

Gross domestic product fell 0.3 per cent between September and October, data published by the Office for National Statistics showed on Wednesday. Economists had expected no change in GDP after a 0.2 per cent expansion the previous month.

To be fair to at-pixel-time UK premier Rishi Sunak, GDP data is notoriously noisy — and monthly readings are especially volatile. Things like strikes, bad weather, bank holidays, coronations, World Cups etc can have a big effect.

And the Office for National Statistics has obviously been having some issues lately (even today’s report had a typo in it). Most notably, the Blue Book 2023 data revision that suddenly added almost 2 per cent to GDP was a bit embarrassing.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

However, as RBC’s Cathal Kennedy pointed out, there weren’t really any one-off mitigating factors that should have dragged down the monthly GDP estimate this time (except for maybe wet weather weighing on construction).

Moreover, the details of the report indicate that this was a pretty broad-based downturn, with services, manufacturing and construction all contracting.

Sum of component contributions may not sum to total growth because of rounding. © GDP monthly estimate from the Office for National Statistics

As a result, JPMorgan’s Allan Monks lowered his forecast for fourth-quarter UK growth from 1 per cent to zero, and warned that a negative quarter was coming unless activity rebounded in November and December.

However, he stressed that recession chatter was still far too early.

While the sudden drop in output in October may reignite talk of a recession, it is worth bearing in mind that measures of business confidence have generally remained close to their average of late, which is not what would be expected if something had broken. The monthly GDP data are volatile and the 3m/3m pace remains at zero (see charts below). Moreover, since hitting a low in September the PMI has edged up to 50.7, as of November, to signal modest positive growth. We will see from this Friday’s flash December reading if that momentum has been maintained.

Just to be on the safe side though, at-pixel-time UK prime minister Sunak should probably avoid jinxing things with any more victory-claiming videos.


Leave a Comment