Holiday Season Spending Likely Kept Economy Afloat in Q4

Main points

• Monthly GDP grew by 0.3 per cent in November, following a contraction of 0.3 per cent in October. This monthly figure was mainly driven by growing output in the services sectors, which rebounded after performing poorly in October and production sectors, which have been contracting since July.
• GDP contracted by 0.2 per cent in the three months to November 2023 relative to the previous three-month period, lower than our previous forecast of a 0.1 per cent contraction. This was generated by contractions in the production and construction sectors, and flatlining growth in the services sector. Higher-frequency data indicate that, while holiday season services spending may have kept the economy afloat in the fourth quarter of this year, declining manufacturing and construction activity could have weighed on economic activity.
• The recent quarterly national accounts (QNA) revisions to GDP estimates indicate that GDP remained flat in 2023Q2, revised down from a first estimate of 0.2% growth, and contracted by 0.1% in 2023Q3, revised down from a first estimate of no growth. 2023Q1 remains unrevised (at 0.3% growth). These figures suggest that GDP was more subdued over the course of 2023 than previously thought.
• We estimate that GDP flatlined in the fourth quarter of 2023, and forecast GDP to grow by 0.2 per cent in the first quarter of 2024. These forecasts remain broadly consistent with the longer-term trend of low, but stable economic growth in the United Kingdom (Figure 1).

“Today’s ONS data indicate that monthly GDP grew by 0.3% in November, following a contraction of 0.3% in October, driven by growth in the services and production sectors. Though this may seem positive, GDP is estimated to have fallen by 0.2% in the three months to November compared with the previous three-month period, due to contractions in manufacturing and construction outputs, as well as failure to sustain growth in the services sector. These three-monthly data, which are less volatile than the monthly figures, suggest that the bigger picture remains one of sluggish growth. This is consistent with the recent ONS quarterly national accounts revisions to GDP estimates, which revised the growth figures for 2023Q2 and 2023Q3 downwards from 0.2% and no growth, respectively, to no growth and -0.1%.”

Paula Bejarano Carbo

Associate Economist, NIESR