UK GDP, September and 3rd Quarter 2021: The main data this month is the more detailed quarterly GDP figures which show the UK economy grew by +1.3% compared to the 2nd period of the year. This was less than expected by most commentators (and less than assumed in our recent forecasts) and makes the annualized growth rate +6.6% and still leaves the economy -2.1% smaller than it was before the pandemic in Q4-2019.
Taking a moment to look at the monthly trend - this is based only on the output measure of GDP while the quarterly data is an amalgam of the output, income and expenditure measures - the economy grew by +0.6% in September; this is the best month since June. The ONS notes that this leaves the economy only -0.6% short of its pre-pandemic peak but this is because it uses February 2020 as the base month rather than December 2019 (which would tie up with the base for the quarterly assessment).
Getting back to the quarterly data, the largest contribution to growth came from the hospitality, arts & recreation and health sectors which benefitted from the easing of restrictions during the quarter. Among the G7 countries, the quarterly growth rate in the UK was ahead of both the USA and Canada but lower than for Germany, Italy and France (the Japanese figures are not included in the ONS report). Only the USA has its economy back above the pre-pandemic level seen at the end of 2019, although France is very close; the UK is the furthest from getting back to this point.
We have already discussed the trends for the manufacturing sector but it is worth noting that total industrial production (which also includes extraction and utilities activity) increased by +0.8% in the 3rd quarter thanks to strong activity in mining & quarrying activity - this is mainly the re-opening of oil/gas fields following planned maintenance activity in June. The pace of growth in the service sector slowed as the base effects from the weakness in 2020 drop out of the calculations; growth of +1.6% for the 3rd quarter was led by “accommodation & food services” which saw an increase of +30% with “arts, entertainment & recreation” up by almost +20%. The main weakness was in wholesale and retail trade - retail sales fell in each of the three months in the 3rd quarter, despite a spike in fuel sales in September from panic buying on expectations of shortages caused by a lack of delivery drivers.
Finally, construction output fell by -1.5% in the 3rd quarter that was generally spread across all the sub-sectors. This reflects the challenges from rising input prices and delays to the availability of construction products.
We will cover the quarterly trade data next week but in the meantime you can get more details from the ONS Statistical Bulletins for the monthly and quarterly GDP which are available from their web-site at https://www.ons.gov.uk/releasecalendar (11 November) or you can request them from MTA.
UK Investment, 3rd Quarter 2021: Recently, the ONS has only published the high level business investment data with the first release and we have to wait for the full national accounts to get the detailed breakdown. However, this time, we have the full suite of data available although we will start at the high level and work our way down to the detail.
Total business Investment in Q3-21 was worth £49.6 billion, an increase of just +0.4% compared to the previous quarter and only +0.8% higher than a year earlier. Looking at spending by type of asset, the category of “ICT & Other Machinery” accounted for almost 32% of business investment at £15.8 billion - an increase in value of +7.3% on the quarter and +13.6% over a year ago.
The ONS notes that the semi-conductor shortage has affected investment by the transport industry, most notably spending on motor vehicles by the rental and leasing industry where the lack of supply of new vehicles has reduced investment spending. This goes some way to explaining why the share of total investment spent on ICT & Other Machinery has increased when you might have expected it to move in parallel with total investment at best.
This brings us neatly to the data for manufacturing; here, capital expenditure by this sector fell by -4.5% compared to the previous quarter but was +6.4% higher than a year earlier with the 4-quarter rolling total up by +4.2%. Investment by the manufacturing sector accounted for 16.5% of total business investment at £8.2 billion in the latest quarter - this is noticeably higher than the share of output in the economy for the manufacturing sector.
Within the total for manufacturing, the “Engineering & Vehicles” industries increased their spending to half of the total for manufacturing at £4.1billion; this is the first time since the 1st quarter of 2016 that this group of industries has accounted for 50% of total manufacturing investment. The value (seasonally adjusted) represents an increase of +2.8% on the previous quarter and +11.2% higher than a year ago, with the 4-quarter moving total up by +6.0%.
You can download the ONS Statistical Bulletin and the investment data files from their web-site at https://www.ons.gov.uk/releasecalendar (11 November) or if you contact Geoff Noon at MTA (email@example.com) we can send you our analysis of the investment data most relevant to our industry, including updated versions of the charts from our recent Forecast Seminar.