Data just out from the ONS shows gross domestic product (GDP) grew by 0.5% in May 2022, after a decline of 0.2% in April 2022 (revised up from a 0.3% fall); UK GDP increased by 0.4% in the three months to May 2022, and by 3.5% in the 12 months to May 2022. You can see the full ONS report >> here <<. Looking for snap reaction. This data is surprisingly strong after a weak April. Is the economy stronger than some suspect or is this a dead cat bounce? Construction strong, though - grew by 1.5% in May 2022, following 0.3% growth in April. This is construction's seventh consecutive month of growth. Why is this?
6 responses from the Newspage community
This is good news for a government in turmoil. It also, potentially, makes some of the contenders' plans to cut taxes easier as the government will have more in the kitty. I wouldn't expect stellar growth over the next 12 months, but this is a promising sign that the UK economy is more resilient than analysts thought. Maybe we can avoid a technical recession, but it won't feel like that to the average consumer. However, as a whole, the economy still faces strong headwinds. Inflation is currently 9.1%, but this is just the beginning. It is expected to go higher than 11%. Energy prices are also set to soar even higher than previously expected in the autumn and prices at the petrol pump have remained stubbornly high despite efforts to reduce the cost to motorists. With less money left in your wallet, you are hit again at the supermarket with the price of the average shop continuing to rise; mainly due to a commodity shortage of base ingredients that have been blockaded in the ports of troubled Ukraine.
As much as doom and gloom shifts papers, when we talk to business owners they're all rushed off their feet. Yes, there are some exceptionally strong headwinds but many British businesses are ready and raring to go. This is a clear sign to government that if they can just try not to do anything too stupid like picking a trade war with the EU, and help normal people through the cost of living crisis, the foundations of the economy are stronger than many think.
Anyone thinking we’re out of the woods is in for a shock. It’s good news that GDP grew, but retail is down, as is consumer confidence overall. Both of those are a a real cause for concern. With the news that emerging market currencies are taking a hammering and the US Fed likely to hike rates by 0.75% again, we should get ready for the imminent 0.5% base rate rise in August from the Bank of England in the hopes of strengthening our currency. We’re caught between a rock and a hard place: hike rates to stop imports generating more inflationary pressure but sting mortgage holders, or leave them as they are and push up prices. Either way, we’re taking money out of people's pockets when they can least afford it.
This data provides some reason for optimism but storm clouds are still very firmly set on the horizon. Construction continues to grow with growth in both new construction and maintenance a positive. However producer input costs have risen to the highest levels since records began in 1985. These rises are already starting to feed through into rising prices and will continue to fuel inflation going forward. Businesses can only absorb costs for so long before they are forced to pass them on. Strap yourselves in, as this ride has only just started and it promises to be bumpier still.
The 0.5% GDP increase in May was largely driven by 0.4 growth in services, the dominant sector in the UK economy. But scratch beneath the surface and the ONS report reveals that most of this growth was down to a large rise in GP appointments. Alarmingly, retail trade fell 0.5% in May, highlighting just how fast consumer spending is falling. But there were also some encouraging signs. Manufacturing and construction grew 1.4% and 1.5% respectively, possibly boosted by the weaker pound helping exports and the still buoyant housing market.
Despite all the doom and gloom being banded about, the new economic data shows signs of hope. Which is not surprising when unemployment is still very low and many industries thriving. Construction is still riding on the back of a very strong property market and raw material prices have begun to come down. The margins are small though and finely balanced, the new PM will have their work cut out to keep the economy growing.