Waning momentum in key sectors of the UK economy
The most important thing to say about the UK’s economic outlook is that it remains extraordinarily uncertain. Nevertheless, the latest news on inflation and real output are — while perhaps expected — concerning.
The challenge with official statistics, however, is that they are published several weeks after the event. In this blog, I look at a more contemporary indicator using the Google Community Mobility Reports data. Specifically, the grocery and pharmacy mobility index has tended to be a reasonable (but far from perfect) proxy for economic activity. [The other indices that Google publishes — such as workplace mobility and retail mobility — are also strongly correlated with GDP and household expenditure, but the grocery and pharmacy one has the tightest fit, so I tend to use it for simplicity.]
The chart shows how the level of output (measured by inflation-adjusted gross value added) has developed in the UK since December 2019, with the blue lines depicting public, private, and other sectors, respectively. [See the chart footnote for more detail.] Focusing on the dark blue line, it shows that private sector economic activity returned to pre-pandemic levels in January 2022.
However, growth momentum since then has been rather subdued. The Google grocery mobility index (black dotted line) did show a significant bounce back in the summer, but to levels no higher than a year ago. More recently, in August and September, it has declined further. Even though there is, inevitably, an element of seasonality in these statistics, they indicate relatively flat, rather than growing economic activity.
Such a development is perhaps to be expected, given the squeeze on household incomes that is taking place. For example, year-on-year wage growth in the three-month period April to June 2022 was around 6%, significantly outpaced by annualised average inflation in the same period of 8.0%, resulting in, in effect, a real-terms cut to wages of 2%.