Economic Monitor: GDP revised up to 1.8% above pre-Covid levels
06 October 20233 Minute Read
Harvir DhillonEconomist | BRC
Kris Hamer PhDDirector of Insight | BRC
Report Excerpt
Despite signs of weakness in a loosening labour market, household consumption is holding up so far. Heading into the final quarter of the year, nominal wage growth remains strong, boding well for real consumption. Job vacancies meanwhile have fallen below a million and the unemployment rate edged further up to 4.3%.
Retail sales volumes remain flat over the previous year, though sales growth in pound sterling (nominal) terms has been buoyant. Business cost bases remain swelled, and still-high input costs are slowing down the pass-through of price reductions. Easing inflation, however, will start to reduce nominal sales growth over the next few quarters.
Interest rates were kept unchanged at the last meeting of the Monetary Policy Committee and are expected to be held at their current rate of 5.25%. This cumulative tightening in lending conditions will weigh on the economy, with most of the impact still to be felt. The Bank of England is expected to keep interest rates elevated at least until the 2% inflation target has been hit. Pressure on household incomes will grow in higher housing costs and stress on businesses will linger, particularly those with higher debt burdens. The resilience of the past year will be tested into 2024 but the outlook remains broadly flat over the coming quarters, and uncertainty remains as to how quickly inflation will fall.
Harvir Dhillon, Economist at the British Retail Consortium
Overview
- GDP fell in July by 0.5%, following an increase of 0.5% in June. Services activity fell by the same amount, and the largest downward contributors were arts, entertainment and recreation as well as professional scientific and technical activities, seeing deteriorating performance. Consumer-facing services, despite the weather, remained flat, helped by sports competitions such as Wimbledon, the Ashes and Grand Prix, though pulled downwards by worsening physical retail activity.
- Inflation eased in August and the Consumer Price Index fell to 6.7%. Of the headline rate, 1.1% emanates from housing and energy costs, 1.6% from food and 1.1% from restaurants and hotels. Fuel prices rose for both petrol and diesel, with these figures registered when petrol was £1.49 per litre and diesel £1.51. Inflation is set to gradually fall over the course of the year.
- The BRC-KPMG measure of retail sales picked up to 4.1% in August, up from 1.5% in July.
- Average regular pay (excluding bonuses) was estimated at £617 per week in nominal terms (not adjusted for inflation), higher than the estimate for a year earlier (£572 per week) and £479 per week in real terms (constant 2015 prices), higher than the estimate for a year earlier (£473 per week).