UK Economy Returns To Growth On Services, Production
The UK economy showed signs of recovery in November, driven by growth in the services and production sectors. However, concerns remain as a slight contraction in December could potentially lead to two consecutive quarters of economic decline.
According to the Office for National Statistics (ONS), the real gross domestic product (GDP) expanded by 0.3 percent in November, effectively offsetting the 0.3 percent decrease observed in October.
The services sector was a key contributor to this growth, expanding by 0.4 percent in November after experiencing a revised 0.1 percent fall in October.
Similarly, industrial production also saw an upturn, rising by 0.3 percent as anticipated. This was in contrast to the revised 1.3 percent decline in October. Notably, manufacturing output increased by 0.4 percent following four consecutive falls. The growth in the manufacturing sector was primarily driven by strong production of pharmaceutical products and preparations.
However, the construction output registered a decline of 0.2 percent in November, albeit at a slower pace than the 0.4 percent drop recorded in October.
In the three months leading up to November, GDP witnessed a decrease of 0.2 percent compared to the preceding period, as reported by the ONS. This decline was mainly driven by a 1.5 percent fall in production and a 0.6 percent decrease in construction, while the services sector saw no growth.
While the growth in November is positive news, Chancellor Jeremy Hunt acknowledged that it will slow down as the government aims to bring inflation back to its 2 percent target.
Commenting on the economic situation, Alex Veitch, Director of Policy and Insight at the British Chambers of Commerce, highlighted how the latest data indicates the fragility of UK economic growth. Veitch added that the economy is likely to remain in a slow lane for the foreseeable future.
Capital Economics economist Ruth Gregory expressed concerns that the UK economy is at risk of stagnating in the second half of 2023 if a recession is avoided. She believes that early 2024 may bring a similar story.
Despite the challenges, ING economist James Smith expressed optimism, stating that interest rate cuts and potential tax cuts could improve the economic outlook. While he does not anticipate a dramatic acceleration in growth this year, Smith believes the chances of a recession have decreased.
On a similar note, the National Institute of Economic and Social Research (NIESR) reported that the UK economy remained stagnant in the fourth quarter. The NIESR projects a growth of 0.2 percent in GDP for the first quarter of 2024, aligning with the long-term trend of low but stable economic growth in the UK.
In other economic indicators, data from the ONS shows that the visible trade gap narrowed to GBP 14.2 billion in November from GBP 15.9 billion in October. Exports grew by 0.4 percent, while imports decreased by 3.3 percent. The overall trade balance, encompassing both goods and services, notably declined to GBP 1.4 billion from GBP 3.2 billion.
The latest economic figures reflect the ongoing challenges faced by the UK economy. While there are positive signs of growth in certain sectors, the overall outlook remains uncertain. Investors and policymakers alike will be closely monitoring future economic data to gauge the potential impact on the UK’s economic recovery.
