Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
ONS data show GDP falling 0.3% in November, leaving output
growing at weakest annual rate since 2012
Data add to chance of fourth quarter decline
PMI hints at faster growth in early-2020
The latest GDP data add to signs that the UK economy stagnated
at best in the fourth quarter of last year as heightened political
uncertainty, Brexit risks and weaker global demand all colluded to
dampen spending by both business and households. The good news is
that all these headwinds are showing signs of moderating, if not
even turning into tail winds, as we move into 2020. However,
downside risks remain elevated.
November decline raises risk of fourth quarter
contraction
Official data from the Office for National Statistics showed the
economy contracting 0.3% in November, worse than the unchanged
picture expected by economists, but broadly in line with the trend
signalled by recent survey data.
Manufacturing led the decline, with output dropping 1.7%, but
the vast service sector also contracted, with output falling 0.3%.
The construction sector surprised to the upside, with a 1.9% surge
in output, though data for this part of the economy are subject
both marked volatility and revisions, suggesting this upturn be
taken with a pinch of salt.
The November downturn leaves the economy growing by a subdued
0.1% in the three months to November, with upward revisions to
prior months having helped offset the latest decline. However,
output in the latest three months is just 0.9% higher than a year
ago, which is the worst performance since 2012. Moreover, so far
the GDP data for the fourth quarter are running very marginally
below the third quarter,
in line with the indication from the IHS Markit/CIPS PMI survey
data. Output needs to rise by at least 0.1% in December to
avoid the economy contracting (barring any revisions to back data),
but the PMI hints at ongoing malaise at the end of the year.
Survey data raise hopes of faster growth in coming
months
More encouragingly, survey evidence suggests growth may being to
pick up in coming months. Although the survey data collected in
December showed
business activity remaining broadly stagnant, sentiment
regarding future output rose sharply, especially after the general
election. The headline all-sector PMI continued to run at one of
its lowest levels seen over the past decade, stuck just below the
50.0 no-change level for a fifth month running at 48.9 in December,
but the output expectations index jumped to its highest for over a
year. A similar improvement in confidence was seen in the Deloitte
CFO survey.
The rise in sentiment suggests that increased political clarity,
notably in relation to Brexit, has boosted business confidence
regarding investment and spending, and could drive growth higher in
coming months. The prospect of increased government spending has
also brightened the outlook. At the same time,
global economic growth has shown signs of picking up, meaning
external demand should act as less of a drag on the UK as we head
into 2020. The worldwide PMI surveys registered the fastest pace of
output growth for eight months in December, buoyed in part by
manufacturing stabilising after an easing of trade tensions.
Threats to the outlook remain elevated, however, notably
including uncertainty over future trading arrangements with the EU.
There's also a distinct possibility that trade wars could continue
to hit growth, especially if the US focus shifts from China to
Europe. Oil prices could also rise amid current geopolitical risks,
squeezing household budgets and raising costs.
In the near term, we will know more about how the UK economy
started 2020 with the release of the January flash PMIs on 24th
January, which are likely to provide an important steer to
policymakers. Recent Bank of England rhetoric has highlighted how
any failure of the survey data to show the improvement in
confidence feeding though to faster economic growth is likely to
lead to a swift cut in interest rates.
Chris Williamson, Chief Business Economist, IHS
Markit
Tel: +44 207 260 2329
chris.williamson@ihsmarkit.com
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
