On the surface, yesterday's UK GDP figures for September look quite solid with activity up 0.6% during the month, however, when you strip out the way health spending is accounted for in the figures then a different picture emerges. If you subtract the effects of in-person doctor appointments and other pandemic related spending, then a moderate outlook becomes more evident. But the UK economy is still growing, just not as strong as first thought, with third quarter GDP disappointing at 1.3%.
There is also a shift in the numbers as the hardest hit sectors of the recent past bounce back with a noticeable switch in spending from goods to newly reopened services. The hospitality sector is above the February 2020 level by a greater margin than the wholesale/retail sectors which again may be a reflection of the summer holiday period and the populous staying in the UK rather than holidaying abroad.
Will this weakness affect the BoE and their expected rate hike over the coming months? We don’t think so. A December rate hike is quite widely anticipated but it may be the jobs data which has more of a bearing. With the furlough scheme way behind us, the impact of redundancy levels and underemployment could be the catalyst for a delay until February’s meeting, but early evidence is that there has been little pickup in redundancies at this juncture.