GDP first quarterly estimate, UK: Sector Response

Government must use Autumn Statement to protect pay and shield workers from misery of recession, warns TUC.

Gross domestic product (GDP) estimates as the main measure of UK economic growth based on the value of goods and services produced during a given period. Preliminary, secondary and final estimates of GDP released over a quarter as data becomes available. See the latest figures by clicking here.

Main Points:

• The first quarterly estimate of UK gross domestic product (GDP) shows an estimated fall of 0.2% in Quarter 3 (July to Sept) 2022.
• Monthly estimates published today (11 November 2022) show that GDP fell by 0.6% in September 2022 which was affected by the bank holiday for the State Funeral of Her Majesty Queen Elizabeth II, where some businesses closed or operated differently on this day.
• In output terms, there was a slowing on the quarter for the services, production and construction industries; the services sector slowed to flat output on the quarter driven by a fall in consumer-facing services, while the production sector fell by 1.5% in Quarter 3 2022, including falls in all 13 sub-sectors of the manufacturing sector.
• In expenditure terms, real household expenditure fell by 0.5% in Quarter 3 2022, while there were also large positive movements in international trade flows in the third quarter.
• Compared with the same quarter a year ago, the implied GDP deflator rose by 5.8%, primarily reflecting higher cost pressures faced by households.

The UK economy shrank by 0.2 per cent in the third quarter of 2022, setting Britain on course for the quickest return to recession since 1975 and offering sobering backdrop to the Autumn Statement next week, the Resolution Foundation said today (Friday).

While a smaller fall than markets expected, the latest contraction was widespread, with consumer spending shrinking amidst an acute cost-of-living.

Should the UK slide into recession next quarter it would be the quickest return to recession since 1975, with the UK only coming out of its last recession eight quarters ago (in Q2 2020).

With today’s GDP data showing growth falling by 0.2 per cent, the TUC is calling on the government to use next week’s Autumn Statement to act now to protect pay and public services.  

Sector Response

Chancellor of the Exchequer, Jeremy Hunt said:

“We are not immune from the global challenge of high inflation and slow growth largely driven by Putin’s illegal war in Ukraine and his weaponisation of gas supplies.

“I am under no illusion that there is a tough road ahead – one which will require extremely difficult decisions to restore confidence and economic stability. But to achieve long-term, sustainable growth, we need to grip inflation, balance the books and get debt falling. There is no other way.

“While the world economy faces extreme turbulence, the fundamental resilience of the British economy is cause for optimism in the long run.” 

TUC General Secretary Frances O’Grady said: 

“The Tories crashed the economy – and now the country is on the brink of recession. As the government prepares for the Autumn Statement, ministers need to act now to boost the economy and to protect workers from soaring prices and the threat of one million lost jobs. 

“Sunak and Hunt must not repeat the mistakes of Cameron and Osborne. Tory cuts over the past 12 years have meant the slowest recovery for a century. 

“The government has a choice. Rather than a recession, they should choose more funding for the vital public services like schools and our NHS, pay rises for our dedicated public servants that match the cost of living, and investment in green tech to meet the challenge of net zero. This is how you build a fairer and more resilient economy.”  

James Smith, Research Director at the Resolution Foundation, said:

“Falling consumer spending has caused the economy to shrink in the third quarter of 2022. This has set Britain on course for the quickest return to recession in nearly half a century.

“These latest figures provide a sobering backdrop to the Autumn Statement next week. The Chancellor will need to strike a balance between putting the public finances on a sustainable footing, without making the cost-of-living crisis even worse, or hitting already stretched public services.”

Joshua Raymond, Director at online investment platform XTB.com comments:

“UK GDP contracted by -0.2% for the third quarter, as the UK economy begins what is expected to be a deep and long recession. Technically speaking the UK won’t be in recession until it suffers two consecutive quarters of negative growth. But given the bleak economic picture and forecasts from the Bank of England, it’s quite clear this reading marks the start of what we expect to be a significant recession for the UK economy. 

The warning signs of what’s to come remains stark; zero growth in the services sector – very much the heartbeat of the UK economy – with a sharp decline in output for services in September compared to the start of the quarter. And we haven’t yet seen the impact in these numbers of the car crash mini-budget which triggered sharp rises in borrowing costs. 

Nevertheless, the optimist in me notes that the data was actually better than expected, with most investors predicting a deeper contraction of -0.5%. US inflation yesterday also fell much faster than expected, raising hopes that the world’s largest economy might well emerge from the inflationary pressures better than expected. These might be seen as some bright spots in the inevitable recession the UK economy is in. The conversation now switches to how shallow and short lived the recession might be. The GBP rose added to strong gains against the US dollar from yesterday’s session in early trade to reach as high as $1.1760. ”

Nicholas Hyett, Equity Analyst, Wealth Club comments:

“Were it not for the disruption caused by the Queen’s funeral – during which many businesses shut – it’s just possible the UK economy could have scraped a positive performance in Q3. 

But despite that perhaps surprisingly strong result, the Q3 GDP announcement is full of warning signs. Inflation is squeezing consumer spending, inward investment has fallen and supply constraints are restricting activity in the manufacturing and construction sectors. The mini-budget turmoil only kicked in right at the end of the period – and that is likely to have left Q4 off to a poor start. 

With consumers battening down the hatches for a tough winter and the government proposing substantial tax rises and spending cuts, we think the economy will shrink again in Q4 – officially pushing the UK into recession. With the Bank of England predicting recession could stretch well into late 2023 or even beyond, the Queen’s funeral may end up marking the start of an “annus horribilis” for the whole of the UK.” 

Alexia Pedersen, VP of EMEA at O’Reilly said:

“With the latest official figures showing that the UK is heading into a recession by the end of the year, innovation will be vital for establishing resilience and ensuring future growth. Encouragingly, our research shows the majority (78%) of UK vertical industries (technology, finance, ecommerce and retail) will increase investment in learning and development (L&D) over the next twelve months.  

“Now is the time for companies to deploy upskilling programmes alongside ongoing recruitment efforts. Likewise, employees should prioritise L&D to safeguard their role and make themselves an invaluable asset to their organisation. This will be key to creating a highly skilled workforce that keeps British businesses at the forefront of their industries globally.”