- Though monthly GDP growth accelerated in September, this was largely due to rising health output and partly reflected higher numbers of COVID-19 tests being carried out.
- Downward revisions to the outturns for July and August left quarterly growth in Q3 at a softer-than-hoped 1.3%. With the gains from reopening now exhausted and policy support being withdrawn, the EY ITEM Club expects that growth will continue to cool.
Martin Beck, senior economic advisor to the EY ITEM Club, says:
“GDP rose by 0.6% month-on-month (m/m) in September, the strongest increase in three months. But this strength was largely due to a robust increase in health output, caused by a combination of a rise in the number of face-to-face GP appointments and an increase in the number of COVID-19 tests carried out in September.
“September’s rise in output meant that GDP increased by 1.3% quarter-on-quarter (q/q) in Q3 as a whole. This was softer than the EY ITEM Club had expected, reflecting downward revisions to the July and August outturns. As in Q2, consumer spending was the key driver, likely underpinned by the continued rebound in social consumption as COVID-19-related restrictions were removed. But net trade exerted a sizeable drag, while the rise in business investment disappointed.
“With the easy gains from reopening the economy exhausted and policy support being withdrawn, the recovery has entered a much tougher phase. In addition, the situation has been made harder by the escalation of supply chain disruption and the increases in inflation, which will eat into household spending power. This latter factor is the main reason why the EY ITEM Club is set to pare back GDP forecasts in its forthcoming Autumn Forecast report.
“However, while the pace of quarterly GDP growth is likely to continue to slow over the next few quarters, it should still compare favourably to the decade leading up to the pandemic, driven by some consumers and firms spending money they have accumulated over the past 18 months.”