Latest figures published today for the UK by the Office for National Statistics, show a decline in GDP for Q3 of 0.3%. This is an upward revision on the first estimate of a month ago, but not enough to take the UK out of a technical recession. At current prices and with a small amount of inflation in the system, GDP grew by 0.1%.
Looking more deeply into the results, we see strong variations in activity.
Household expenditure was flat over the quarter compared with drops of 1.5% and 0.6% in Q1 and Q2. Quite a turnaround over the year but not enough to push us into positive overall growth. We have been buying more cars and 'recreational goods' such as electrical goods and spending less on eating out, hotel stays, energy and clothing. So, some big winners and losers on the High Street.
Company investment fell for another quarter - by 0.3% - following big reductions of between 2% and 7% each quarter for the last year. Again a big turnaround, but still lacking sufficient momentum to carry us into growth. Inventories are being kept to a minimum, advertising spend is still low - except online - and new projects are being talked about but obviously not yet started.
With flat household spending and a decline in company investment, government spending rose - by 0.2% - in the quarter and is now 1.9% higher than last year. Together these explain the continued decline in GDP albeit at a much lower rate. We are 5.1% below the level output at the start of the recession.
These numbers tell us:
1) We are on the upside of the curve and slowly moving towards positive growth - the run up to Christmas will as always be important as an indicator of whether households continue to get back to spending and whether companies improve their confidence to spend and invest ahead of an upturn.
2) Government support is still an important part of the recovery. Whether that is directly through spending or indirectly through schemes such as the car buying scheme, we are still some way off being able to withdraw government stimulus packages in anticipation of the private sector taking over the reins of growth
3) With continued lower exchange rates, export markets should provide opportunties for us especially as other EU countries are back into positive growth.
4) From a company point of view, competition is intense and margins need to maintained through imaginative ways of increasing cost efficiency and effectiveness through, for example, business process improvements. At the same time, efforts to connect with customers, pump priming investment on marketing and investing in talent and tactics to spot and follow up market opportunities become critical to success.
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