Further to our previous article, the latest report from the Office for National Statistics (ONS) shows that UK GDP increased by 0.8% in January 2022, more than offsetting the 0.2% fall in December 2021
UK GDP
The latest report from the ONS shows that UK GDP grew by 0.8% in January 2022, following a fall in GDP of 0.2% in December 2021 (on account of the Plan B restrictions, caused by the emergence of the Omicron Covid-19 variant). This means that the UK economy is now 0.8% larger than its pre-pandemic level in February 2020, with UK GDP growing overall within the UK economy by 1.1% in the 3 months to January 2022.
All sectors of the economy contributed to the growth in UK GDP in January 2022, with food and beverage activities growing by a staggering 6.8%
As a whole, the services sector increased by 0.6% in January 2022, and by 0.8% in the 3 months to January 2022. This is despite a contraction of 0.5% in December 2021. The sector is now 1.3% above its February 2020 pre-pandemic level. The main contributor to growth in January 2022 was wholesale and retail trade, which expanded by 2.5%. Strong growth was also registered by Information and communication (2.9%), motion picture, video and tv programme production, sound recording and music publishing activities (6.7%), and computer programming, consultancy and related activities (6.5%)
The production sector expanded by 0.7% in January 2022, and grew by 0.4% in the three months to January 2022. The main driver fueling the growth was in manufacturing, which increased by 0.8% in January 2022, and by 0.8% in the 3 months to January 2022. Other sectors that performed well in January 2022, were electricity, gas, steam and air conditioning supply (1%), and water supply and sewerage (2.6%). Nevertheless, production remains 2% below its pre-pandemic level in February 2020. Mining and quarrying, for instance remain well below their pre-pandemic level, and actually contracted by 8.3% in the 3 months to January 2022.
The construction sector is now 1.4% above its pre-pandemic level, having grown by 1.1% in January 2022, and by 3% in the 3 months to January 2022. The principal contributor to growth in this sector has been in repair and maintenance, with an increase of 4.6% in January 2022. In contrast, new work contracted by 0.8% during the month.
Unemployment
As UK GDP continues its recovery from the coronavirus pandemic, unemployment continues to fall. Unemployment fell by 0.2% to 3.9% in the 3 months to February 2022 according to the latest ONS figures.
In tandem with the decline in unemployment, there has been a growing problem with labour shortages in the economy, as we highlighted in a recent article. The ONS recently reported that there were 1,298,400 job vacancies. However, the latest statistics show that this has risen again to 1,318,000 in the 3 months to February 2022, an increase of 105,000 compared to the previous quarter.
The Cost of Living Crises
The cloud that continues to hang over the economy and UK GDP prospects is the ongoing cost of living crises. Russia's invasion of Ukraine has led to the costs of petrol and diesel rocketing to record levels, with petrol reaching 166p per litre and diesel 177p per litre on average at one point, both record highs.
The energy price cap is also due to increase on the 1st April 2022, with those on default tariffs paying by direct debit now having to pay £1,971.00 per year, an increase of £693.00 compared with the £1,277.00 they were previously paying. This has been partially offset by £350.00 worth of Government support, in the form of a £200.00 Energy Bills Rebate from October 2022, and a £150.00 Council Tax rebate from April 2022 for those households in bands A-D. Nevertheless, the Energy Bills Rebate of £200.00 will ultimately be recouped over a 5 year period from 2023 at a rate of £40.00 per year.
Moreover, the energy price cap is predicted to increase again in October 2022, with Cornwall Insight forecasting a further rise of 29%, with the average dual fuel bill going up to £2,512.00.
Compounding these problems and the prospects for UK GDP growth is inflation. Whilst average pay in the 3 months to January 2022 increased by 4.8%, inclusive of bonuses, and by 3.8%, exclusive of bonuses according to the latest statistics from the ONS, that has to some extent been offset by the surging rate of inflation. Inclusive of bonuses, real wages increased by just 0.1%, whilst exclusive of bonuses, there was a large fall of 1%.
Inflation as measured by the Consumer Prices Index (CPI) has increased further in the 12 months to February 2022 to 6.2%. That is up 0.8% from 5.4% in December 2021. Indeed, the Office for Budget Responsibility (OBR) are forecasting that inflation will average an incredible 7.4% in 2022, before falling back to an average of 4% in 2023.
UK GDP Prospects Downgraded By OBR
The problems caused by the cost of living crises have led the OBR to downgrade their forecasts for UK GDP growth. Back in October 2021, the OBR were predicting that UK GDP would be 6% in 2022. They now forecast that UK GDP for this year will only be 3.8%, a fall in their predictions of 2.2%.
The OBR state that their reason for downgrading UK GDP for 2022 are that: "the large fall in real disposable incomes weighs on household consumption and real GDP."
