One Last Hurrah Before Belts are Tightened?

Main points

• Monthly GDP grew by 0.1 per cent in November, driven by increases in services, particularly in administrative and support activities, which offset a strike-related fall in the transportation and storage subsector. Consumer-facing services also saw a boost in November, particularly food and beverage activities, as the FIFA World Cup kicked off; that said, it is notable that this subsector remains 8.5 per cent below pre-pandemic levels, while all other services are 2 per cent above.
• GDP contracted by 0.3 per cent in the three months to November, driven by a 1.4 per cent decrease in production.
• Concerningly, the S&P Global/CIPS UK PMIs for December recorded figures below the neutral 50 (indicating contracting output) for the services, manufacturing and construction sectors. In particular, PMI data for the construction sector – which recorded negative business activity expectations in December, representing only the sixth time this has ever happened since records began in 1997 - adds downside risks to our estimate for GDP growth in the fourth quarter of last year.
• We estimate that GDP in December will fall relative to November, but overall, we expect to see services-driven GDP growth of 0.1 per cent in the fourth quarter of 2022.

"Today’s ONS estimates indicate that GDP grew by 0.1 per cent in November relative to October, driven by monthly growth in services which saw, among other things, a significant boost to food and beverage activity possibly associated with the start of the FIFA World Cup.  Despite this, GDP contracted by 0.3 per cent in the three months to November, consistent with what we had forecast last month. Given that PMIs for services, manufacturing and construction all posted below the neutral 50 for December, we expect to see a slight fall in GDP in December relative to November; but, this means a rise in quarterly GDP, possibly a sign that households are enjoying a last hurrah before they tighten their belts in 2023. Looking towards the first quarter of 2023, the risks to GDP seem to remain on the downside, driven by anaemic growth in the major sectors, fragile consumer and business confidence and a widespread fall in real incomes."

Paula Bejarano Carbo
Associate Economist, NIESR

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