GDP Set to Flatline in Q2, Though Downside Risks Have Grown

Main points

• Monthly GDP fell by 0.1 per cent in May 2023 following growth of 0.2 per cent in April. This monthly figure was driven by driven by a fall in production output of 0.6 per cent following a fall of 0.2 per cent in April, and services output remaining flat following growth of 0.3 per cent in April.
• GDP remained flat in the three months to May relative to the previous three months, in line with our most recent forecast. As shown in figure 1 below, the economy has largely flatlined following the initial stages of post-pandemic recovery; today’s monthly GDP is estimated to be only 0.2 per cent above its pre-pandemic (February 2020) level.
• We forecast GDP to remain flat in the second quarter of 2023, remaining broadly consistent with the longer-term trend of low economic growth in the United Kingdom. That said, as persistently high inflation continues to squeeze household budgets, alongside the effects of the high cost of borrowing, demand will be curbed in the near term. As a result, service-sector output in particular may continue to falter and drag down on GDP in the coming month. The risks to GDP at the moment seem to be skewed downside.

"Today’s data indicate that GDP remained flat in the three months to May, in line with our previous forecast, and consistent with the longer-term trend of low economic growth in the UK. Monthly GDP fell by 0.1 per cent in May following growth of 0.2 per cent in April, driven by a fall in production output and no growth in the services sector. With the Bank Rate now at 5 per cent, suppressing demand, UK growth will continue to be anaemic at best in the coming months."

Paula Bejarano Carbo,
Associate Economist