GDP Remains Subdued Ahead of Tomorrow’s MPC Meeting

Main points

• Monthly GDP contracted by 0.3 per cent in October, lower than our previous forecast of a 0.1 per cent contraction, and following growth of 0.2 per cent in September. This monthly figure was mainly driven by decreased services output, particularly in information and communication activity, but was exacerbated by declines in production and construction output as well.
• GDP remained flat in the three months to October 2023 relative to the previous three-month period, lower than our previous forecast of a 0.1 per cent growth. This was generated by a 0.1 per cent expansion in the services sector being offset by 0.7 per cent and 0.3 per cent declines in output in the production and construction sectors, respectively. Higher-frequency data indicate that, while holiday season services spending may continue to keep the economy afloat in the fourth quarter of this year, declining manufacturing and construction activity could weigh on the economy.
• We now forecast GDP to remain flat in the fourth quarter of this year. Our early forecast for the first quarter of 2024 expects GDP to grow by 0.3 per cent, driven by the services sector. These forecasts remain broadly consistent with the longer-term trend of low, but stable economic growth in the United Kingdom.

“Today’s ONS figures indicate that monthly GDP fell by 0.3 per cent in October following growth of 0.2 per cent in September, driven by falls in output in the services, production and construction sectors. Looking at the bigger picture, GDP remained flat in the three months to October relative to the previous three-month period as increases in services were offset by falls in output in the production and construction sectors. These data suggest that economic activity is subdued and may be taken as a sign at tomorrow’s MPC meeting that no further monetary tightening is needed, despite yesterday’s labour market data remaining rather strong.”

 Paula Bejarano Carbo

Associate Economist, NIESR