UK growth figures released yesterday morning (12 December) could have been mistaken for a Christmas miracle: gross domestic product (GDP) rose 0.5 per cent month-on-month in October, the Office for National Statistics (ONS) said, following a fall of 0.6 per cent in September. It’s good news, considering the doom-laden forecasts economists have made in recent months. But a deeper reading indicates that this may be something more like what’s known in financial markets as a “dead cat bounce” than a real recovery. It’s also a useful reminder that GDP isn’t the only measure of the UK’s economic success.
A look at last month’s GDP release provides a hint about why today’s news isn’t quite as positive as the headlines let on: September’s fall was exacerbated by the day off we had for the Queen’s funeral. Ordinarily the ONS adjusts for bank holidays, but as this was a one-off event it skewed September’s data, meaning that in comparison October’s figure looks rosier. Month-on-month data often behaves like this: an extra bank holiday here, a football tournament there, or even a snowy weekend, can have a profound effect, meaning the month-on-month figure tends to jump about.
This month health was also a factor: GP appointments and vaccination programmes count towards the services element of GDP data. Today’s ONS figures show health – officially categorised as “human health and social work activities” – helped to bolster GDP growth as a whole, rising by 1.3 per cent in October, the second-biggest contributor to the services sector. But the ONS points out that “there was an increase in underlying health activities and a rise in coronavirus testing and vaccinations for the second consecutive month because of the autumn booster campaign”. As Samuel Tombs, the chief UK economist at Pantheon Macroeconomics, adds, that contribution “will fade over the coming months, now that the booster programme is almost complete”.
If month-on-month GDP growth is such an unreliable indicator, what should we use to assess the health of the economy? A longer period tends to give us a broader picture – for instance, over the three months to October, the economy shrank 0.3 per cent, after a 0.2 per cent fall in the three months to September. Kitty Ussher, the chief economist at the Institute of Directors, says: “It is this longer-term trend that will have more impact on the [Bank of England’s] Monetary Policy Committee when it meets on Thursday to consider whether the time has come to slow the pace at which interest rates are rising.” David Bharier, head of research at the British Chambers of Commerce, adds that his organisation’s latest quarterly economic forecast “expects the UK economy to be in recession for five consecutive quarters”.
Another way to measure the economy is to move away from growth altogether, and look instead at the health of the labour market, the figures for which are released by the ONS today. Unemployment is currently at 3.6 per cent, its lowest since the early 1970s, but even that is skewed by the number of people who would rather report that they are self-employed than admit to being unemployed, and those resorting to taking jobs that offer fewer hours than they need to sustain themselves and their families.
A more objective view of the health of the economy is offered by growth in wages – in particular, real wages. While wages including bonuses rose 6 per cent between July and September, real wages factor in the way in which the buying power of those wages is eroded by inflation, which was 11.1 per cent in the year to October. According to the ONS, real wages including bonuses fell 2.6 per cent in the three months to September. A chart in Sunday’s Financial Times shows that the situation is particularly dire for those in the public sector: real average earnings for those working in public services are down 6 per cent, compared with just under 2 per cent for those in the private sector.
That highlights just how draconian the government’s attitude to public sector workers’ efforts to increase their pay has become. Steve Barclay, the Health Secretary, whose department is grappling with strikes by ambulance workers, nurses and midwives, has stuck doggedly to his “won’t somebody think of the patients?” message. That ignores the economic reality: in June this year there were 47,000 vacancies for nurses, according to NHS Digitial, and the Commons Health and Social Care Committee has recommended that the NHS hire 2,000 additional midwives to keep patients safe. If real pay continues to drop, people will no longer be attracted to those roles – and with the NHS in crisis, we urgently need people to be attracted to those roles.
Real wage growth has that advantage over GDP growth – particularly the shaky month-on-month figure. It can paint a picture of the UK economy that most other economic indicators can’t: a human picture, one showing that right now, for almost everyone in the economy, the everyday business of living, working and providing is becoming more difficult.