UK economy unexpectedly grows in November

Today’s economic numbers for the UK economy pointed to a weaker performance after the October rebound, which came about as a result of the slowdown seen in September due to Queen Elizabeth 2 funeral. A rebound in October car sales, as well as construction helped see UK monthly GDP rise by 0.5% in October, however on a 3-month rolling basis we remained in contraction at -0.3%.

The November numbers released this morning have evened out this down and up effect as economic activity slowed to 0.1%, which was slightly better than expected. On the broader 3 month measure the economy still contracted by -0.3%.

Industrial and manufacturing production fell sharply into contraction territory on a monthly basis, dragged down by the manufacture of pharmaceuticals, chemicals and chemical products, however car production rose for the 3rd month in a row.

Services performed better, helped by pubs and bars as people watched the World Cup. Tour operators and reservation services were also positive contributors with gains of 3.7% as people booked holidays for next year.

One of the biggest drags on services was transportation with the post and rail strikes, but as we saw in some of the recent trading updates from retailers, this translated into consumer activity being displaced into other areas, as people collected their items rather than having them delivered.

The World Cup also continued until 18th December so the November boost is likely to have continued into mid-month, or at least until England’s exit on 10th December. The continued wind down of NHS Test and Trace and the vaccine program also weighed on economic activity.

Does this mean that we might see a quarterly contraction in Q4 when we see the December numbers in a months’ time? According to the OBR the UK economy is already in recession, however as is often the case, could they be wrong?

It’s likely to be a close-run thing, but with the September decline of -0.8% set to drop out of the rolling 3-month numbers when the December numbers are released in a months’ time the UK might avoid a technical recession, if this week’s positive retail updates are any indication, but any growth is likely to be pretty anaemic, and 2023 is still likely to be very challenging.

Nonetheless today’s numbers do offer some hope the UK economy may be more resilient than first feared, and may give the Bank of England slightly more flexibility when it comes to rate policy.