UK GDP beat expectations in November

Chris Scicluna
Emily Nicol

UK GDP beats expectations with positive growth in November
Contrary to expectations of a drop, UK GDP eked out modest growth of 0.1%M/M in November following growth of 0.5%M/M in October. However, that still left GDP down 0.3%3M/3M, although the average level of GDP in the first two months of Q4 was broadly in line with the Q3 average. Given the likelihood of a significant decline in December due to harsh winter weather and increased rail and postal strike activity, we think that GDP still probably declined slightly last quarter – by about 0.1%Q/Q, bang in line with the BoE’s forecast in its November Monetary Policy Report – following the drop of 0.3%Q/Q in Q3.

Growth in November came from the services sector, where activity increased 0.2%M/M following growth of 0.7%M/M in October. While administrative and support services, as well as ICT, made the biggest contributions, hospitality also provided a positive impetus, seemingly buoyed by the start of the FIFA World Cup. However, despite the increase in November, overall output in consumer-facing services remained some 8.5% below the pre-pandemic level, with other services were up 2.0% on that basis, illustrating the persistent impact of the coronavirus on behaviour.

Beyond the services sector, UK economic activity was more predictably underwhelming in November. Manufacturing output dropped 0.5%M/M, marking the fifth decline in six months, despite a third successive increase in auto production as supply-chain disruption eased. With increased extraction of oil and gas providing some offset, overall industrial production fell 0.2%M/M after a drop of 0.1%M/M in October. Construction output was unchanged in November following downwardly revised growth of 0.4%M/M the prior month. We anticipate a big hit to construction in December due not least to the snow.

Chinese exports and imports end last year on a soft note
Consistent with the marked weakening in domestic sentiment in December, ongoing Covid-related disruptions and slowing global demand, China’s trade figures unsurprisingly marked a disappointing end to 2022. In particular, the value of exports was down in December compared with a year earlier for the third consecutive month, with the 9.9%Y/Y drop the steepest since May 2020. The weakness was led by a steeper drop in shipments to Germany (down 13.5ppts to -27.9%Y/Y), while exports were also down to the US and UK by almost 20%Y/Y. There was a second successive decline in shipments to Japan too (-3.3%Y/Y). Overall, this left full-year growth in Chinese exports at 7.1%Y/Y in 2022, down from almost 30%Y/Y in 2021 (and an average of 16½%Y/Y in 2020-2021). But subdued domestic demand saw the value of imports decline for a third consecutive month too (-7.5%Y/Y), to leave them up just 1.1%Y/Y in 2022, a sharp slowdown from growth of 30%Y/Y in 2021 (average of 14½% in 2020-2021). The overall goods trade surplus rose almost $9bn in December to $78bn, some $5bn above the average last.

Euro area IP likely rebounded in November, but will be on track for Q4 drop
Today will bring euro area industrial production data for November. Given a pickup in German output, as well as strong growth in France and Ireland, aggregate euro area IP is expected to have risen around 1%M/M, albeit reversing merely half the 2.0%M/M drop in October, and therefore leaving output trending around ½% below the Q3 average. Euro area goods trade data for November are also due to be published this morning. In line with the improvement recorded in Germany, the trade deficit is likely to narrow that month reflecting a drop in the value of imports. We will also see the release of the first full-year estimate of German GDP growth in 2022. Finally, while final French inflation figures aligned with the preliminary release showing the headline HICP rate falling 0.4ppt to 6.7%Y/Y, today’s final Spanish figures were revised a touch lower, albeit likely insufficiently to have any material impact on the euro area data.

US focus on consumer confidence, inflation expectations and import prices
The end of the week in the US will bring the preliminary University of Michigan consumer sentiment survey for January, with the inflation expectations component to be closely watched – in December expectations for inflation one year ahead fell 0.5ppt to 4.4%Y/Y an eighteen-month low, while expectations for 5-10 years ahead edged down by 0.1ppt to 2.9%. Consumer confidence might, however, receive a boost from lower gasoline prices, although the weakness in many other leading indicators and associated recession chatter is likely to have had a restraining effect. Beyond the University of Michigan survey, data for import prices in December are likely to report a sixth successive monthly drop, of about 0.9%M/M. That will in part reflect lower fuel prices. Excluding petroleum, the decline in import prices is expected to be more moderate at 0.3%M/M, that will be the eighth such fall in a row, illustrating the marked reversal of the price trend in the goods sector.

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