This week saw the release of the ONS’s first estimate for UK GDP growth in August. The economy grew by 0.2% relative to July – a welcome return to growth, but a sign of poor growth for the rest of the year. Growth in July itself was revised down further, from -0.5% to -0.6%, so growth in August is from a lower base than anticipated.
That means real GDP in August was still 0.5% lower than in June, and essentially unchanged when compared with April this year. And anything less than 0.3% month-on-month growth in September will mean a quarter of negative growth.
Chart: UK real GDP since January 2022
In fact, the story of the last year and half is one of essentially no growth. GDP has been quite volatile, reflecting the multiple shocks that have buffeted the UK, with some large falls being quickly succeeded by a recovery but no real momentum behind it. The economy was no larger in August 2023 when compared with May 2022 – a harsh economic reality that provides a difficult backdrop for fiscal events in the UK (the Autumn Statement in November) and in Scotland (the Scottish Budget in December).
Strike-affected sectors and manufacturing disappoint
Looking at sectoral breakdowns, and comparing quarter 3 so far (July and August) with quarter 2, two main factors jump out.
One is continued strike action reducing output in a number of key sectors, with health and transport being particularly affected. Scotland has been much less affected by strike action – no health strikes took place, and only minor effects will have been felt from the wider UK rail strikes on Scottish services – and we should therefore expect divergence again when the corresponding Scottish GDP statistics are released in a few weeks.
The other main factor of note is the poor performance of the manufacturing sector, whose output so far this year is more than 2% lower than it was in 2021, indicating the effect of the input price shock on this energy-intensive sector, as well as slowing demand both at home and abroad is taking its toll.
João is Deputy Director and Senior Knowledge Exchange Fellow at the Fraser of Allander Institute. Previously, he was a Senior Fiscal Analyst at the Office for Budget Responsibility, where he led on analysis of long-term sustainability of the UK's public finances and on the effect of economic developments and fiscal policy on the UK's medium-term outlook.