![](/sites/beprofessional/files/styles/standard_banner_xs/public/header/axa-im-insight-landing-building-g1336638475_0.jpg?h=561d35fe&itok=beUmVekN)
UK reaction: Out of the woods, but recovery will be slow.
- 13 March 2024 (3 min read)
The UK economy kicked off the year on a stronger footing, with a recovery in real incomes underpinning a rebound in consumers’ spending and stronger public sector activity. Monthly GDP picked up by 0.2% month-to-month in January (as expected) more than offsetting the 0.1% decline in December. Admittedly, GDP still fell overall by 0.1% on a three-month-on-three-month basis. But we think the January’s rise marks the start of a gradual pick-up in economic activity; the worst is probably behind us.
As expected, services sector output was the main contributor to the overall increase in GDP, increasing by 0.2% on the month (consensus 0.2%), following December’s decline of -0.1%. Industrial production (IP) fell by 0.2% (consensus was for no change), but construction output jumped by 1.1%. Note though the monthly increase in the latter wasn’t enough to offset declines in November and December; output in this sector was still down 0.9% on a three-month-on-three-month basis.
Services sector output was bolstered by a rebound in activity in consumer-facing services, with rising real incomes boosting spending. Indeed, retail sales increased by 3.4% on the month, reflecting broad-based increases in spending at supermarkets, department stores and the like. Consumer-facing services output was admittedly unchanged in the three months to January, as was the case with services output overall. But we expect the continued recovery in real incomes ‑ as wage growth continues to outstrip inflation and the additional cut to NICs kicks in ‑ to support further increases over the remainder of the year. Elsewhere, education activity rose by 0.7% in the month, due to an easing in strike action, while health care was bolstered by “market activity” which more than offset Junior Doctor strike action.
The fall in industrial production, meanwhile, was partly driven by a further 1.3% fall in mining and quarrying in January, after a 1.8% decline in December. Note that output in this sub-sector is now 19.3% below its January 2022 level, with the Department for Energy Security and Net Zero reporting that reduced investment in the North Sea was behind the recent downward trend; output will likely remain in the doldrums for most of this year. More broadly, manufacturing output remained unchanged in January. We think the recovery in this sector will be bumpy given the disruption in the global shipping; the PMI remained below 50.0 in February, though it did post a 10-month high. But with early signs of that the manufacturing cycle may be turning, we expect a gradual pick up in the latter part of the year.
It is important to note that even though we expect growth to pick up over the coming quarters, the recovery will be slow going. Indeed, we have growth of 0.4% pencilled in for 2024. The MPC, therefore, will probably look through the GDP numbers, particularly if the labour market and inflation data continue to cool. We continue to expect the first rate cut of 25bp to be pushed through in August, with two further cuts in November and December, leaving Bank Rate at 4.5% by year-end.
The market reaction was muted given the data came in broadly in line with expectations. Sterling trading at $1.2787, down only slightly from $1.2793.
Related articles
View all articles
![](/sites/beprofessional/files/styles/364x205/public/header/axa-im-insight-article-city-g1391245608_1.jpg?itok=RIfcfSAk)
US reaction: Q2 GDP: a little faster, not too slow
- by David Page
- 25 July 2024 (3 min read)
![](/sites/beprofessional/files/styles/364x205/public/header/axa-im-insight-article-city-g494538659_2.jpg?itok=bW0B_lgQ)
Ca reaction: BoC cuts again, no more Mr Gradual?
- by David Page
- 25 July 2024 (3 min read)
![](/sites/beprofessional/files/styles/364x205/public/header/axa-im-insight-article-city-g629626804_2.jpg?itok=eBWC4aAN)
China reaction: Surprising second rate cut in a week
- by
- 25 July 2024 (3 min read)
![](/sites/beprofessional/files/styles/364x205/public/header/axa-im-insight-article-city-g1185243853.jpg?itok=NDfqIaCD)
July Monthly Investment Strategy - One crazy summer
- by David Page, Hugo Le Damany,
- 24 July 2024 (10 min read)
![](/sites/beprofessional/files/styles/364x205/public/header/axa-im-insight-article-city-g1185243853.jpg?itok=NDfqIaCD)
July Op-Ed - Reconvergence
- by Chris Iggo, Gilles Moëc
- 24 July 2024 (10 min read)
Disclaimer
This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.
It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date.
All information in this document is established on data made public by official providers of economic and market statistics. AXA Investment Managers disclaims any and all liability relating to a decision based on or for reliance on this document. All exhibits included in this document, unless stated otherwise, are as of the publication date of this document.
Furthermore, due to the subjective nature of these opinions and analysis, these data, projections, forecasts, anticipations, hypothesis, etc. are not necessary used or followed by AXA IM’s portfolio management teams or its affiliates, who may act based on their own opinions. Any reproduction of this information, in whole or in part is, unless otherwise authorised by AXA IM, prohibited.
Issued in the UK by AXA Investment Managers UK Limited, which is authorised and regulated by the Financial Conduct Authority in the UK. Registered in England and Wales No: 01431068. Registered Office: 22 Bishopsgate London EC2N 4BQ
In other jurisdictions, this document is issued by AXA Investment Managers SA’s affiliates in those countries.
© AXA Investment Managers 2024. All rights reserved