GDP figures are weak, but not as apocalyptic as headlines suggest, says IEA economist
13 June 2022
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Commenting on GDP data, published by the ONS, Julian Jessop, Economics Fellow at free market think tank the Institute of Economic Affairs, said:
“The April UK GDP figures were weak, but not as apocalyptic as many headlines suggest. In fact, the UK economy has held up better than might have been feared, given the big hits from both energy prices and tax hikes that month.
“The main negative was a sharp fall in government spending on NHS Test and Trace. Once again, the UK is paying a price in the official data for measuring the output of the public sector more accurately than other countries. Excluding this factor, GDP rose by 0.1 per cent in April. This was the smallest increase of the year, but it is premature to call ‘recession’.
“Nonetheless, the private sector economy has stalled. Output fell in all three of the broad categories (services, industry and construction) for the first time since January 2021. But to put that in context, GDP collapsed by 2.9 per cent in January 2021, far bigger than the 0.3 per cent fall in the headline figure reported today.
“Looking ahead, there are some positives. The increase in the National Insurance threshold kicks in next month, which is a substantial tax cut, and the additional cost of living support payments are coming soon. The labour market is still very tight, which is tough for businesses but good for job security and for anyone looking for new work.
“The household sector also has at least £140 billion in excess savings that were accumulated during the pandemic. This is unevenly distributed, but will still allow many consumers to maintains spending despite a fall in real incomes.
“There is therefore no reason for policymakers to panic. In particular, the Bank of England should continue to return interest rates towards more normal and healthy levels. The Chancellor can probably still get away with waiting until the autumn before providing additional support, though more action may be required sooner if fuel prices continue to surge.”
ENDS
Notes to editors
Contact: media@iea.org.uk, 07763 365520
IEA spokespeople are available for interview and further comment.
“The April UK GDP figures were weak, but not as apocalyptic as many headlines suggest. In fact, the UK economy has held up better than might have been feared, given the big hits from both energy prices and tax hikes that month.
“The main negative was a sharp fall in government spending on NHS Test and Trace. Once again, the UK is paying a price in the official data for measuring the output of the public sector more accurately than other countries. Excluding this factor, GDP rose by 0.1 per cent in April. This was the smallest increase of the year, but it is premature to call ‘recession’.
“Nonetheless, the private sector economy has stalled. Output fell in all three of the broad categories (services, industry and construction) for the first time since January 2021. But to put that in context, GDP collapsed by 2.9 per cent in January 2021, far bigger than the 0.3 per cent fall in the headline figure reported today.
“Looking ahead, there are some positives. The increase in the National Insurance threshold kicks in next month, which is a substantial tax cut, and the additional cost of living support payments are coming soon. The labour market is still very tight, which is tough for businesses but good for job security and for anyone looking for new work.
“The household sector also has at least £140 billion in excess savings that were accumulated during the pandemic. This is unevenly distributed, but will still allow many consumers to maintains spending despite a fall in real incomes.
“There is therefore no reason for policymakers to panic. In particular, the Bank of England should continue to return interest rates towards more normal and healthy levels. The Chancellor can probably still get away with waiting until the autumn before providing additional support, though more action may be required sooner if fuel prices continue to surge.”
ENDS
Notes to editors
Contact: media@iea.org.uk, 07763 365520
IEA spokespeople are available for interview and further comment.
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