Another month without growth shows our recovery remains fragile

For the second month in a row (and in fact the third month out of four) monthly GDP growth was zero. Growth in the three months to July slowed to 0.5 per cent from 0.6 per cent in the three months to June, and growth comparing with the same three months last year was only 1.1 per cent.

The latter figure is well below the potential of the economy, but par for the course under the Tories (see here).  

The figures resonate with weakness earlier in the week in the jobs data. While the headline LFS figures were more positive, the payrolls figures for employees (based on HMRC sources) and the so-called workforce jobs figures (based on industries) were less so. The ONS themselves now lead their reporting of the labour market story on the payroll figures.

These show falls in employee jobs into the latest three months (June to August), and quite a deterioration in private sector jobs. Since the end of last year private jobs are down 250,000 or 1.2 per cent.

Until recently gains in public services posts have more than offset the private falls (chart below), but at face value there is now a steeper fall in private jobs. There are caveats: these figures do not separately identify the private sector jobs in public service industries, and also there is a tendency for the latest figure to be revised (and usually moderated).

On the other hand the workforce jobs data (which extend only to the second quarter) show a more benign position, with only a small fall in total jobs of 28,000 between Q2 and Q1, but a rise of 225,000 on the end of last year (23Q4). The figures show private sector jobs stalling rather than falling, though there is a decline of 120,000 into the latest quarter.

Behind the headline GDP figures

The story behind the GDP headline figures is most obvious from the demand or expenditure perspective, which has not been updated today. As we might expect, with the severe pressures on living standards, the critical weakness is in household demand. The figures grew by only 0.2 per cent in Q2 following 0.4 per cent in Q1, and on the year fell by 0.3 per cent. International figures show the latter figure the second worse of all OECD countries.

In Q2 business investment also fell by 1.1 per cent on the year, with low consumer demand likely to be holding confidence back more generally. Fragile global conditions also mean trade is weak, with exports declining on the year by 1.1 per cent.

Today’s monthly figures in fact showed the activity of retailers and wholesalers up (echoing a rebound in retail sales between June and July), and likewise the broader category of consumer facing services was up 0.3 per cent on the month. But beyond the monthly figure consumer facing services increased by only 0.1 per cent on the quarter, and fell by 0.4 per cent on the year.

On the month services overall expanded (+0.1%) but there were falls in both manufacturing (-1.0%) and construction (-0.4%); last month it was the other way around with manufacturing and construction rising (by 1.1% and 0.5 % respectively) but services falling (by 0.1 %). The sum of the parts is the flatness over the two months in the headline figures. Overall the picture by industry is difficult to unravel (see charts in the annex), but it may be that the main gains are in business to business activity, rather than business to consumer.

Reacting to today’s GDP figures, TUC General Secretary Paul Nowak said:  

"The new government has recognised the scale of the challenge our economy faces after years of poor performance and chaotic crises under the Conservatives. After another month without growth our recovery remains fragile.  

We remain firmly well below our potential - in the last 12 months, growth was only 1.1%.

This government has rightly promised significant investment to revitalise UK industry and to start to address the Tories’ manufacturing decline.  

This will help create strong growth that delivers good jobs and improves pay. Now is the time for an ambitious industrial strategy that drives our economy forward again.” 

ANNEX: Charts of output by industry, indices 2019=100