Latest government figures out today which show a rise in GDP of 0.1% should be treated with caution, investment experts say.
The rise means that the UK may avoid a technical recession – two quarters of negative growth – at least for the time being.
Industry experts say that while the unexpected UK growth in November – called a World Cup bounce by some – is welcome it does not mark a turning point.
Mazars chief economist George Lagarias said while the growth was positive news, global macro-economic conditions continued to create major challenges for the UK economy.
He said: “UK GDP grew for the second straight month, defying expectations. While a part can be attributed to increased activity related to the World Cup, overall, the picture is one of otherwise healthy growth in the services sector. We should not, however, perform a victory lap for the UK economy just yet. The wider picture is that macroeconomic variables have become increasingly unpredictable.
“We see this trend continuing and possibly exacerbating over the foreseeable future. The global economy remains significantly unbalanced, consumption patterns are disrupted, and we expect larger oscillations in growth and inflation than in the past. This could leave forecasters confused for some time, especially if they are heavily reliant on quantitative models.”
ONS director of economic statistics Darren Morgan said: “The economy grew a little in November with increases in telecommunications and computer programming helping to push the economy forward. Pubs and bars also did well as people went out to watch World Cup games.
“This was partially offset by further falls in some manufacturing industries, including the often-erratic pharmaceutical industry, as well as falls in transport and postal, partially due to the impact of strikes. Over the last three months, however, the economy still shrank – mainly due to the impact of the extra Bank Holiday for the funeral of Her Majesty Queen Elizabeth in September.”
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Melanie Baker, senior economist at Royal London Asset Management, said: “The unexpected rise in November GDP reduces the chance that the UK is already in ‘technical recession’, following two consecutive quarters of negative GDP growth. Business surveys looked consistent with only relatively modest falls in output in December, despite strike activity. Consumer-related data for December so far, looks more resilient than I’d have expected. The World Cup may have boosted activity.
“Even if it turns out that for now the UK has escaped a technical recession, the performance of the UK economy over recent months has been poor and the economy faces a stack of challenges. The consumer still faces substantial cost of living pressures and consumer confidence remains very weak in the UK. Monetary policy has tightened a lot; we’ve had a big jump in mortgage rates and the housing market is slowing.
“Fiscal policy will be tightening over coming years. You could also add continued strikes, an underperforming health service and the ongoing challenges of Brexit to the list. If the economy did end the year on a stronger than expected note with a rise in GDP in December, I would worry about payback in Q1 2023, for example as consumers potentially pull back discretionary spending after Christmas”.
Marcus Brookes, chief investment officer at Quilter Investors, said: “Following the slight bounce back seen in October, this morning’s data shows UK GDP unexpectedly grew by 0.1% in November. However, in the three months to November GDP fell by 0.3%, edging the UK closer to an official recession.
“Despite government support with energy bills and a reasonably mild winter thus far which should have supported people’s ability to spend, high inflation and rising everyday costs continue to have a significant impact on the economy. For the Bank of England, inflation remains the biggest scourge and as such we can expect it to continue to increase its base rate in the face of a recession – albeit there are growing calls to slow the pace of these hikes and for a pivot sooner rather than later.”
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said: “Growth came primarily from the services sector, with other areas struggling. While this data set offers some positivity, the broader picture still poses challenges. On a three-monthly basis, the UK still shrank, and a 0.1% gain on a monthly basis smells heavily of stagnation, rather than real growth. The idea that the UK will formally enter a recession soon is still very much a likelihood.”
Jonathan Moyes, head of investment research, Wealth Club, was more positive. He said: “We have seen retailers report stronger than expected earnings reports for Q4 over the past week, and it appears a stronger than expected consumer services and services more broadly have helped the UK economy defy gloomy expectations.
“It may be too soon to mark the beginning of a turn in sentiment for the UK, but a quiet consensus appears to be forming. Energy prices are falling sharply, China is reopening and interest rate expectations have eased significantly.”
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