In the release of the National Accounts for the final period oof last year which were published today by the Office for National Statistics (ONS), there were no revisions to the GDP data for the UK economy at the level of 1 decimal place at which these are quoted.
This, therefore, confirmed that the UK economy was technically in a recession in the 2nd half of 2023 with quarter-on-quarter contractions of -0.1% and -0.3% in the 3rd and 4th quarters respectively. However, thanks to base effects from 2022 and growth in the 1st quarter, the economy grew by +0.1% for 2023 as a whole.
Taking these two quarters together, the decline has been revised up to -0.4% from -0.5% in the first estimate of quarterly GDP. It also seems likely that this will be the shortest possible recession of only two quarters as GDP growth of +0.2% was confirmed for January 2024 and other very short-term data is pointing to Q1-2024 having a plus sign on the GDP figures when they are released in mid-May.
Looking at the sectoral breakdown, the manufacturing sector has been revised down slightly and output is now estimated to have contracted by -1.0% in the 4th quarter of 2023 but thanks to a strong start to the year, 2023 is +1.1% higher than 2022. For construction, while the quarterly pattern has been revised so that output fell by -0.9% in the final quarter, there is no change to the full year figure of growth of +2.0% in 2022.
Readers with a keen eye for trends will be wondering where the weakness in growth for 2023 has come from – the answer is the service sector which has seen three consecutive quarters of falling output, albeit it only quite marginally and much less than the sharp falls in the other two sectors in the final quarter of the year. Service sector activity fell by -0.1% in the 4th quarter but grew by +0.3% for 2023 as a whole.
International comparisons reported by the ONS based on the G7 group of countries suggest that the UK is the 2nd weakest economy in terms of the full year trend. Germany has the same pace of decline (-0.3%) as the UK in the quarter-on-quarter trend but is also the only one where GDP contracted for the year as a whole; however, they have only had one quarter of falling GDP, so only the UK in this group of countries has technically had a recession.
With the publication of the Quarterly National Accounts, we also get an update on the investment numbers and the detailed sector breakdown. Total business investment is now estimated to have grown by +1.4% in the 4th quarter of 2023 and by +5.5% for the year as a whole. Looking at the asset type detail, spending on “ICT & Other Machinery” grew by +1.0% in the final period of last year and by +3.1% in 2023. This was the element of business investment which benefitted most from the super-deduction allowance which was still available in the 1st quarter of last year and this has driven most of the growth here.
Disappointingly, total manufacturing investment fell by -1.0% in the 4th quarter of 2023, with spending by the Engineering & Vehicles sub-group down by -3.9% compared to the 3rd quarter. Although total manufacturing investment grew by +3.6% in 2023, the Engineering & Vehicles group saw a reduction of -2.1% compared to 2022. It is likely that the distortions around the ending of the super-deduction allowance is driving this decline.
It is worth noting that the manufacturing sector accounted for 14% of total business investment in 2023 but only about 8% of the economy, so it punches above its weight in this area of economic activity. In turn, the Engineering & Vehicles industries accounted for 42.5% of manufacturing investment last year.
You can download the ONS Statistical Bulletin for the National Accounts from their website at https://www.ons.gov.uk/releasecalendar (22 December) or request it from MTA.