UK Growth is Slowing ... But Will Still Be Over 7.5% in 2021

The latest ONS estimate for GDP growth was released this week. Data for October suggested the economy was slowing down. "Construction slowdown holds back recovery" the headline in the Times. It was a similar story in manufacturing.

The data revealed, the economy grew by just 0.1% in October compared to 0.5% prior month. Construction and manufacturing sectors were hit by supply chain problems and rising material prices. Should we be concerned?

Earlier in the week, PMI Markit data for the construction sector reported the fastest rise in construction output for four months in November. The headline index increased to 55.5 in the month up from 54.6 in October.  The index has been in positive territory for ten consecutive months. The bounce back was led by robust rise in commercial work. Supply delays continued to increase but cost inflation dipped to a seven month low.

Looking at the ONS data more closely, we prefer to analyze the year on year rate of growth. It's a house style. We also model GDP(O) primarily. It's more akin to business modelling as opposed to theoretical expenditure and income models.

Compared to prior year, year on year growth in October was up by 4.6%. Service sector growth was up by 5.4%. The transport sector was up by 9.5%. Construction was up by over 3%. Manufacturing growth was up by just 1.3%.

For the year as whole, we still expect growth of over 7.5% this year and around 5.5% next year, assuming no widespread shock from additional anti omicron measures. The service sector will increase by 5.9% this year. Manufacturing will be up by 4.3% and construction output will be up by almost 20%. You can download the TSE UK Forecast December Slide Deck  using the link. It's a sort of Christmas treat!

Businesses, especially in hospitality, travel and leisure are concerned about the impact of Plan B on activity into the New Year. Markets are convinced the December rate rise that never was, will now never take place. Sterling closed up. U.K. bond yields closed down. Why?

Don't miss our Monday Morning Markets update. "Any explanation is better than none" Nietzsche.