Post-pandemic GDP growth in UK’s different sectors is diverging

The more I listen to commentary on UK GDP figures, the more convinced I am that, to make more sense of them, we need to delve beyond the headline aggregates. I have previously suggested that it is useful to analyse private and public sector output separately. In this blog, I look at specific sector dynamics at the next level of detail. For example, how representative of the private sector is the widely reported statistic that, in the 2nd quarter of 2022, UK’s economy had not recovered to pre-pandemic levels?

During the COVID-19 pandemic, I used to produce monthly “rollercoaster” charts, showing real GDP by individual sector in a single line chart. In many ways, that picture was also a refection of the impacts that social distancing and other restrictions had on specific economic activities. For example, hospitality was deeply affected; utilities less so. Are latest GDP figures similarly a clue to the patterns underlying the current economic turbulence?

The chart above certainly suggests some common themes in recent months. Sectors that are most exposed to supply chain bottlenecks and fuel costs — such as manufacturing and transport — are experiencing flat or declining output. Hospitality and recreation, which tend to be relatively sensitive to household incomes, have also recently lost momentum. Retail and wholesale activities remail below pre-pandemic levels and now face more difficulty due to rising costs of food and imported goods.

Overall, however, among the largest non-public sectors of the UK economy, most recovered to pre-COVID levels already some time ago. Retail, wholesale, transport and logistics are the exceptions. The statistic quoted above, then, is strongly influenced by what’s been going on in two large public sector activities: health and social care, and education. And the output of these sectors, in turn, is subject to significant measurement challenges and revisions.

My takeaway? Watching aggregate GPD numbers matters, but understanding specific sectors gives a much richer sense of the strength of the economy and where it might be headed.