Monthly GDP (Oct.) - Capital Economics
UK Markets

Monthly GDP (Oct.)

UK Data Response
Written by Ruth Gregory

The economy continued to grow in October, but at a snail’s pace. And with the COVID-19 restrictions likely to remain in place for some time, the economy is in for a difficult few months yet. But scope for a decent “vaccine bounce” next year should allow the economy to regain its pre-pandemic level in early 2022. And we now think that by the middle of the decade the economy won’t be much smaller than if the crisis had never happened.

GDP barely grew at all in October, but hope further ahead

  • The economy continued to grow in October, but at a snail’s pace. And with the COVID-19 restrictions likely to remain in place for some time, the economy is in for a difficult few months yet. But scope for a decent “vaccine bounce” next year should allow the economy to regain its pre-pandemic level in early 2022. And we now think that by the middle of the decade the economy won’t be much smaller than if the crisis had never happened.
  • The 0.4% m/m rise in real GDP (consensus 0.4%) was a far cry from the 2.2% m/m and 1.1% m/m gains seen in August and September respectively and suggests that the recovery had already burnt out even before November’s lockdown was imposed. That left the economy still 7.9% smaller than before the crisis, a bigger shortfall than during the whole of the Global Financial Crisis. (See Chart 1.)
  • The breakdown by output component had some encouraging aspects. The manufacturing recovery was still going strong at the start of Q4, with output in the sector rising by 1.7% m/m. And the 1.3% m/m gain in overall industrial production left output in that sector just 4.4% below its pre-crisis level. The construction sector too registered another solid 1.0% m/m gain leaving the sector 6.4% smaller than before the crisis.
  • But the all-important services sector only managed to eke out a 0.2% m/m rise, as the accommodation and food sector, which was most exposed to the COVID-19 tiering restrictions phased in during October, contracted by a huge 14.4% m/m. At least arts, entertainment and recreation activity rose by 2.0% m/m. But that was from an extremely low base and output is still 23.4% below its pre-crisis level. As a result, output in the services sector as a whole remains 8.6% below its pre-pandemic level. (See Table 1.)
  • Meanwhile, the shift away from spending on services and towards goods (which have a higher import share) wiped out the UK’s international trade surplus in October. The surplus of £0.6bn in September was replaced by a deficit of £1.7bn in October. And if vaccines fire-up the economic recovery next year, then a larger deficit will probably emerge as imports climb by more than exports.
  • Of course, October feels like very old news. The second lockdown probably caused the economy to contract sharply in November, perhaps by up to 8% m/m, and the strict COVID-19 regional tier system put in place in December will limit the rebound in activity in the coming months.
  • What’s more, the economy still has an awful lot to contend with in the form of ongoing COVID-19 restrictions in the coming months, rising unemployment and a large overhang of corporate debt. This underlines the need for the Chancellor to resist the urge to raise taxes and focus instead on keeping the fiscal support in place to nurse the economy back to full health. (See here.) Beyond the next six months, though, the outlook looks brighter, provided of course, the politicians don’t mess it up with an uncooperative no deal Brexit or an early fiscal tightening.

Chart 1: Level of Monthly GDP (February 2020 = 100)

Sources: Refinitiv, Capital Economics

Table 1: GDP by Sector

Sector

% m/m

Level in Apr.

vs. Feb. (%)

Level in Oct.

vs. Feb. (%)

Apr.

May

Jun.

Jul.

Aug.

Sep.

Oct.

Water supply and sewage

-7.4

1.4

4.4

1.1

-0.5

1.7

0.6

-5.5

3.0

Electricity and gas

-7.0

0.5

4.3

4.5

0.6

0.4

0.3

-7.0

3.0

Public administration and defence

0.3

0.1

0.1

0.2

0.2

0.2

0.2

0.4

1.4

Wholesale, retail and motor repairs

-28.4

13.4

28.5

7.6

-0.3

0.0

0.8

-35.8

1.1

Agriculture

-6.0

0.8

3.2

2.7

0.8

-0.1

-1.4

-7.7

-2.0

Real estate

-2.1

-0.5

0.0

0.6

0.1

0.3

0.1

-2.5

-2.1

Mining and quarrying

-1.7

2.7

7.2

-1.7

-4.3

1.3

0.2

-7.2

-2.5

Financial and insurance

-5.2

1.0

0.7

1.0

0.6

0.0

-0.2

-5.6

-2.7

Construction

-41.2

9.1

21.8

17.4

3.8

2.9

1.0

-44.4

-6.4

Manufacturing

-25.1

7.8

12.0

6.9

0.9

0.2

1.7

-29.7

-6.6

Information and communications

-10.8

-1.9

5.9

2.3

-1.0

-0.4

1.1

-11.9

-6.7

Professional, scientific and technical

-18.2

-2.1

7.6

2.7

0.5

3.9

0.2

-19.4

-8.7

Education

-17.9

6.8

8.7

10.3

5.3

4.8

1.4

-37.9

-10.7

Transportation and storage

-30.1

7.3

17.8

6.3

2.2

3.5

1.1

-39.1

-12.5

Activities of households

-41.3

-2.8

11.9

18.2

15.3

4.8

-2.5

-43.9

-14.9

Human health and social work

-21.7

1.4

2.2

5.5

4.3

3.0

2.0

-31.1

-17.6

Administration and support

-27.4

-1.0

14.1

4.3

0.9

0.5

1.3

-35.0

-21.4

Other service activities

-44.4

3.4

6.6

41.5

1.2

4.0

0.3

-53.0

-22.5

Arts and entertainment

-37.1

-4.8

22.0

17.9

0.0

3.4

2.0

-46.9

-23.4

Accommodation and food

-86.6

2.8

116.6

149.6

68.5

-8.3

-14.4

-91.1

-34.6

Total GDP

-19.5

2.7

9.1

6.3

2.2

1.1

0.4

-25.3

-7.9

Summary of Sectors

Agriculture

-6.0

0.8

3.2

2.7

0.8

-0.1

-1.4

-7.7

-2.0

Industrial Production

-19.6

5.7

9.8

5.2

0.3

0.5

1.3

-23.3

-4.4

Construction

-41.2

9.1

21.8

17.4

3.8

2.9

1.0

-44.4

-6.4

Services

-17.8

1.8

8.2

5.7

2.4

1.0

0.2

-24.4

-8.6

Total GDP

-19.5

2.7

9.1

6.3

2.2

1.1

0.4

-25.3

-7.9

Sources: Refinitiv, Capital Economics


Ruth Gregory, Senior UK Economist, +44 (0)7747 466 451, ruth.gregory@capitaleconomics.com