Investment Institute
Market Alerts

UK Reaction: A subdued bounce-back in growth

  • 12 September 2022 (5 min read)

Modupe Adegbembo, G7 Economist at AXA Investment Managers, comments on the latest UK GDP numbers:

• GDP rose by 0.2% in July following a fall of 0.6% in June just below consensus expectations of a 0.3% rise, with the UK economy posting a modest bounce-back in activity following the additional bank holiday in June.

• Output in services grew by 0.4% in line with consensus estimates. Industrial Production and Construction output declined on the month by 0.3% and 0.8% (consensus +0.3% and +0.5%).

• Despite growth remaining robust, we see a greater risk that the UK slips into technical recession this quarter following an additional bank holiday being granted for Queen Elizabeth II’s funeral, but the energy bills package announced last week means any decline is unlikely to persist.

• Following the announcement of the energy bills support package, we increased our rate forecasts; we now expect rates to reach 3.5% by year end.


GDP rose by 0.2% in July following a fall of 0.6% in June just below consensus expectations of a 0.3% rise, with the UK economy posting a modest bounce-back in activity following the additional bank holiday in June. Over the three months to June GDP remained flat compared with the previous 3 months.

Output in services grew by 0.4% in line with consensus estimates, the rise in services was the main contributor to July’s growth. Industrial production and construction output declined on the month, marking the second consecutive month of declines in this sector. Industrial production output fell by 0.3% (consensus 0.3%) and construction output fell by 0.8% (consensus 0.5%), respectively. Within the services sector, growth was driven by information and communication (+1.5%) and health care and social work (+0.8) as GP appointments continue to rise. Output in consumer-facing services rose by 0.6% in July bolstered the UK hosting the Women’s EURO and Commonwealth Games. Manufacturing output rose across almost all sub-sectors, posting a 1.4% rise overall.

Last week’s fiscal package remans pivotal to the growth outlook, the package which is set to total over £130 billion will support real incomes boosting growth and will likely be enough to prevent the economy slipping into a prolonged recession as we had previously been forecasting. At the same time as the UK mourns the death of the Queen, the additional bank holiday that has been granted for her funeral could see growth shift lower than we had initially expected this quarter, increasing the risk that the UK slips into technical recession this quarter. We had pencilled in growth of 0.3% prior, but the adjustment we have seen historically for additional bank holidays has seen growth hit by around 1.5% on the month This scale of hit to GDP would see growth of -0.4% over the quarter, tipping the UK into technical recession following the 0.1% decline recorded in Q2.

Following the announcement of the energy bills support package, we increased our Bank Rate forecasts; we now expect rates to reach 3.5% by year end. Whilst the package is set to reduce headline inflation, the boost to growth it will provide leaves the Bank of England with more to do to ensure inflation returns to target. We expect the BoE will hike rates by 75 basis points (bps) in their September meeting and by 50bps in both November and December. 

Have our latest insights delivered straight to your inbox

SUBSCRIBE NOW
Subscribe to updates.

    Disclaimer

    This market comment should not be regarded as an offer, solicitation, invitation or recommendation to subscribe for any investment service or product and is provided for information purposes only. No financial decisions should be made on the basis of information provided.

    This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.

    It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date.

    All information in this document is established on data made public by official providers of economic and market statistics. AXA Investment Managers disclaims any and all liability relating to a decision based on or for reliance on this document. All exhibits included in this document, unless stated otherwise, are as of the publication date of this document.

    Furthermore, due to the subjective nature of these opinions and analysis, these data, projections, forecasts, anticipations, hypothesis, etc. are not necessary used or followed by AXA IM’s portfolio management teams or its affiliates, who may act based on their own opinions. Any reproduction of this information, in whole or in part is, unless otherwise authorised by AXA IM, prohibited.

    Issued in the UK by AXA Investment Managers UK Limited, which is authorised and regulated by the Financial Conduct Authority in the UK. Registered in England and Wales No: 01431068. Registered Office: 22 Bishopsgate London EC2N 4BQ. In other jurisdictions, this document is issued by AXA Investment Managers SA’s affiliates in those countries.