Sarah Giarrusso, Investment Strategist at Tilney Smith & Williamson, the wealth management and professional services group, comments on August UK GDP:
What happened?
UK real monthly GDP rose 0.4% in August relative to consensus expectations of 0.5%. This follows a disappointing figure of just 0.1% last month which has been revised down to a 0.1% fall. The 3-month over 3-month rate was 2.9%. Services sector printed a 0.3% monthly rise which was slightly below expectations, whereas the year-on-year figure came in above expectations at 7.3%. Industrial production slowed to just 0.8% compared to the previous month’s 1.2%, however did beat expectations of just a 0.2% increase.
What does it mean?
The rebound in the monthly GDP figures is welcome confirmation that the UK economy continues its recovery. As we move through the ‘post-pandemic’ re-opening period, challenges continue to arrive, supply chain disruptions have been a hindrance to the industrial sector, where output remains constrained. However, as vaccination rates are high and restrictions have been lifted, the boost to services has offset the lower level of industrial production. Yesterday’s official labour market report also reflected this growing economic strength – according to the PAYE payroll-based measure of employment, the UK has added more jobs than were lost due to the pandemic. Job vacancies remain at record highs and the unemployment rate at 4.5%.
However, the UK does still face headwinds, such as labour shortages and supply chain disruption which could lead to higher, stickier inflation. Despite this, consensus forecasts for 2021 and 2022 annualised real GDP remain firmly in expansionary territory at 7.0% and 5.3% respectively. We expect the UK economy to continue its recovery and the environment to remain conducive for equities to outperform bonds.
